Spain’s banks weather credit crisis

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This topic contains 6 replies, has 6 voices, and was last updated by Profile photo of Anonymous Anonymous 8 years, 10 months ago.

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  • #53611
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    marios
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  • #78231
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    Very good article. Just shows that some things are done right in Spain. But I don’t think the Spain’s big banks are the problem. It’s the smaller regional cajas (savings banks) that are heavily exposed to the property market downturn. Let’s hope they muddle through without a major casualty.

    Mark

  • #78234
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    Anonymous
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    If not then it may prove to be a great opportunity for the big boys to make a takeover bid.
    They appear more than capable of doing this as recent cases confirm.

    Frank 8)

  • #78279
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    Spanish large banks such as BBVA and Santander are very strong and solvent banks. Don’t worry they will have no financial problems unlike all the writedowns of their anglosaxon counterparts. The reason is that they did not invest in SIV’s (sub-prime) and the Bank of Spain has forced them to make huge provisions as well in preparation of the change of cycle.

    These large banks must not be put in the same bag as the Spanish regional savings banks (cajas de ahorros) which are ruled by different specific laws and do not have shareholders or are not made accountable by anyone as to their management or mismanagement. They are really financial entities at the service of politicians.

    Over the last 2 days 4 general directors of cajas have been removed from office for “personal reasons” (Caixa Catalunya, BBK, Cajasol and Cajasur). Cajasur has had three general directors in less than a year !

    http://www.eleconomista.es/empresas-finanzas/noticias/352425/01/08/Las-cajas-espanolas-mueven-sus-sillas-ante-un-futuro-gris.html

    Over this last year 15 general directors of Spanish savings banks have been removed from office. Quite significant I’d say.

    http://www.cotizalia.com/cache/2008/01/29/67_relevo_generacional_crisis_cajas_ahorro_cambian.html

    The vast majority of loans to Spanish developers have been made by cajas de ahorros. So rough times ahead for them I’d say.

  • #78313
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    Hi Drakan,
    I don’t share your confidence in the big Spanish banks. The ft article is based solely on the opinion of a mexican guy I have never heard of. He may be the governor of the bank of Mexico, but what sort of reputation does this bank have? I suspect that the ft had a few column inches to fill.

    Call me a cynic but most banks that have got caught up in this crisis have declared days before that they have no exposure to subprime.
    & what about this article?
    http://www.telegraph.co.uk/money/main.jhtml;jsessionid=YQ4HSSIOGHRN5QFIQMFCFGGAVCBQYIV0?xml=/money/2008/01/28/bcnspain128.xml
    Why do the Spanish banks so desperately rely on the ECB funding window if they do not have major cashflow problems caused by subprime exposure.
    I’m not sure if the argument is that they didn’t create spanish SIVS but the idea that they are the only country in the world that didn’t buy into american subprime seems far fetched. The ECB is currently keeping the Spanish Northern Rocks afloat -will it be able to next time they need refunding?

  • #78330
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    @forestfire wrote:

    Hi Drakan,
    I don’t share your confidence in the big Spanish banks.

    Call me a cynic but most banks that have got caught up in this crisis have declared days before that they have no exposure to subprime.
    & what about this article?
    http://www.telegraph.co.uk/money/main.jhtml;jsessionid=YQ4HSSIOGHRN5QFIQMFCFGGAVCBQYIV0?xml=/money/2008/01/28/bcnspain128.xml
    Why do the Spanish banks so desperately rely on the ECB funding window if they do not have major cashflow problems caused by subprime exposure.

    Forestfire we do not seem to agree as of late, do we ?

    Cajas are not banks, so when you call them like that you are confusing terms, they are “cajas de ahorro”. In English and for the sake of transalation you call them savings banks. Why aren’t they banks ? Because they work very differently from normal banks. I won’t go into detail because it is quite confusing. Please research the difference yourself.

    Let’s see what “banks” are mentioned in the article:

    “Among those issuing mortgage securities in the last two months are BBVA (€4.9bn), Caja Madrid (€2.4bn), Caja Catalunya (€1.6bn), CAM (€1.4bn), and Caja Castilla la Mancha (€800m).”

    BBVA – is truly a bank with a market cap of 55 thousand million euros. One of the top 20 banks in the world.
    Caja Madrid – is a caja
    Caja Cataluña -is a a caja
    CAM (Caja de Ahorros del Mediterráneo) -is a caja
    CCCM (Caja Castilla la Mancha) – is a caja

    So out of the 5 “banks” mentioned in the article only one is truly a bank and the other four are cajas or savings banks.

    I have been reading articles by Ambrose Evans-Pritchard for a few years now and I cannot recall him writing any positive article of Spain. He doesn’t seem to be very neutral towards Spain I’d say. Might only be my personal impression though.

    In his article he fails to mention how this ECB credit facility has also been widely used by länder banks (german), french banks, italian banks as well as we are all part of the European Union. Unfortunately you British only half joined us and you still have your pound system so you cannot benefit of this line of ECB credit which all European banks have taken advantage of. In fact Northern Rock wouldn’t have had any problems if you had the euro system and there would have been no bank run at all.

    But the author of the article decided that small piece of information wasn’t relevant to his article. Hmm…. 😉

    BBVA and Santander -believe it or not- were not involved in subprime because the BoS torpedoed any attempt not making it worthwhile financially. They are very strong banks and are sound financially.

    I wouldn’t stick my hand in the fire for any caja de ahorro though. They are a completely different story.

    EDITED: 8th April 2008

    From the Washington Post:

    Double Bubble Trouble?

    Monday, April 7, 2008; Page A17

    There are two views of the financial crisis. The first is that we face the bursting of a real estate bubble, a product of loose monetary policy, no-doc loans and alphabet-soup financial securities. The second is that we face the bursting of that bubble plus a terrifying long-term one that has been building since the Reagan era. This second bubble is the product of a quarter-century expansion in borrowing, excessive confidence in the dollar and an overblown faith in markets.

    The chief partisan of this double-bubble diagnosis is George Soros, hedge-fund manager extraordinaire. His latest book, published electronically last week, predicts the deflation of the second bubble, with chilling implications. You don’t have to agree with every part of Soros’s argument to embrace his prescription. It’s not enough to respond to the real estate bubble in this crisis; the long process of credit expansion must be brought under control.

    Between 1950 and 1980, total lending in the United States inched up slowly relative to the size of the economy. Then, in the early 1980s, it took off. Every dollar of capital was “leveraged” aggressively: Private equity wizards loaded firms with debt; hedge funds bought securities on margin; banks lent prodigiously on thin cushions of capital. All this leverage boosted rewards in good times, because a thin capital cushion means fewer shareholders to divvy up the profits. But a thin capital cushion has the opposite consequence when a shock comes. There are fewer shareholders to absorb losses and still repay lenders. Bankruptcy beckons.

    Why have Americans gorged on debt? First, because it has been available. The dollar is the world’s reserve currency: Holding a dollar-denominated bond or bank deposit has been thought of as the safest way to store savings. So whenever Americans have wanted to borrow more, the world’s savers have been happy to provide the capital. As with any bubble, this confidence in the dollar became self-fulfilling. Precisely because the United States was regarded as a safe haven, money flowed into the country at the first sign of trouble, buoying the value of everything from stocks to bonds to real estate.

    The second reason Americans gorged on debt was that it didn’t seem too risky. Whenever a really big bankruptcy loomed, regulators staged a rescue, cutting the risk of lending to the top players. Without the Fed’s intervention, people who lent to Bear Stearns or bought its fancy securities would have been hit with nasty losses. But thanks to the Fed, Bear was the latest in a long line of episodes in which creditors escaped relatively unharmed.

    Debt also seemed not to be too risky because financiers had excessive faith in their statistical models. These suggested that their investments would never lose more than a small percentage of their value: Hence a thin capital cushion would suffice. But since its invention in the 1960s, financial economics has overestimated the efficiency of markets and underestimated their tendency to swing viciously. Along with the authorities’ successive rescues and savers’ confidence in American assets, this error kept the debt party going.

    The nightmare is that this long party will be followed by an equally extended hangover. Savers will lose confidence in the United States, preferring to hold euros. Financiers will re-evaluate their models and bring borrowing levels down with a bump. This “deleveraging” will depress the economy, further encouraging savers and financiers to ration credit. The growth-fuelling debt expansion of the past quarter of a century could be followed by a growth-dampening contraction.

    If this double-bubble thesis is even partly accurate, the authorities will not be able to protect us from hard times. But what they can do — in fact, must do — is guard against policies that inflate the long bubble even further, making the eventual hangover still worse. It is foolhardy to bail out Bear Stearns and pump liquidity into Wall Street without considering what this might do to reinforce the credit culture. Today’s necessary rescues must be followed by tomorrow’s necessary discipline.

    Two reforms stand out as necessary. The complex securities that are traded “over the counter” between banks, hedge funds and other players must be brought wherever possible onto exchanges, because this will reduce the pressure on the Fed to stage rescues. Bear Stearns was not too big to fail; it was, as The Economist has said, too entangled to fail: Its bankruptcy would have stranded holders of billions of dollars of its securities with nobody on the other side of their contracts. When trading moves onto an exchange, the exchange itself guarantees the contract. One impetus to Fed rescues can thus be neutralized.

    The second reform involves a lesson from the clever authorities in Spain. Until now, banks have measured their capital cushions by figuring out what their holdings of securities would fetch in the market. This is a formula for bubbles: As markets rise, the value of banks’ holdings grows, allowing banks to lend more and drive markets up still further. Spain’s central bank broke this cycle by requiring lenders to increase capital cushions during a market upswing. It would be a fitting acknowledgment of America’s tarnished preeminence if the world now embraced the Spanish model.

    smallaby@cfr.org

    http://www.washingtonpost.com/wp-dyn/content/article/2008/04/06/AR2008040601653.html

  • #78337
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    @Drakan wrote:

    In his article he fails to mention how this ECB credit facility has also been widely used by länder banks (german), french banks, italian banks as well as we are all part of the European Union. Unfortunately you British only half joined us and you still have your pound system so you cannot benefit of this line of ECB credit which all European banks have taken advantage of.

    Did you not see this article, written by one Evans Ambrose-Pritchard?

    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/10/01/bcnecb101.xml

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