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@adiep wrote:
Yes, saw that yesterday. Must be close to the day reckoning.
Am wondering what is the day of reckoning going to be like then?
Is it apocalyptic or is it just a Tuesday?
Greece, Ireland, before them Iceland have by definition had their day’s of reckoning one supposes.
Was it any different from one day to the next, did they turn up and switch off the lights?
If Spain has a bailout eventually, what will be different from one day to the very next?
Am not trying to be cynical or provocative here, am genuinely interested.
My understanding is that a bailout brings strictures and demands upon a country, much as Britain had back in the Callaghan / Healy days, and brings about fiscal prudence, austerity measures and good governance no?
Should we be ‘talking up’ the possibility of a bail out, instead of predicting the apocalypse?
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Hi Chris, the day of reckoning is when Spain admits the full extent of its financial crisis – a financial judgement day.
In terms of effects, well for Ireland there were a series of measures that needed to go along with the bailout, many of which will seriously impact the lives and finances of the Irish people and Irelands investors. For instance in Ireland, the state promised to cut spending by 20billion, so obviously that has a rather large impact on public services. There was also something like 25bn that got moved from the state pension pot into buying Irish gilts, so lets see how that performs over the coming years – not so well one would guess when compared to where it could have been invested.
I guess that doesn’t mean a lot to you, but to the Irish it was obviously devastating, hence they took to the streets.
For Spain, as you run a property business that would be impacted by tax rises, vast reductions in public spending, job losses and difficulties with the banks financing themselves, I suspect you’ll probably be able to make your own mind up what the day of reckoning will mean, or if the apocalypse is nigh.
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adiep wrote:I guess that doesn’t mean a lot to you, but to the Irish it was obviously devastating, hence they took to the streets.
quote]I hope you don’t think I was being flippant, I have friends and family who are severely affected by the crisis in Ireland.
But in terms of Spain, will it not still be a Tuesday? What I mean is, we don’t need the IMF to tell us that Spain needs a financial day of reckoning, we all know it, if it is decided by the markets and the EU that they have to face up to someone else managing them for a period, well – what will be – will be I suppose.
Ireland thought they had a plan for that not to happen, but events took over.
What I am saying is, does this make the actual event any more apocalyptic than it already is, is there essentially going to be any difference? If Spain is bailed out tomorrow, is that going to be much more different than the situation here today?
Seems to me not, we just get on with it, and maybe it is a good thing? The Irish know where they stand and what they have to do, it is hugely distressing and painful, but onward and upward from here no? What is the difference the situation we have – is what it is – pretty much ground zero, in fact could even be called the bottom of the market!
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There are wider considerations when it comes to Spain. The bailout fund will need to increase massively, some say up to 1.5trillion Euros to cover the fallout if Spain starts to crumble – 80bn for the Caja’s isnt an end to the matter, that only covers a proportion of the Caja’s non-performing loans (60% i believe) and it doesnt cover the banks at all. It also doesnt include Spains sovereign debt nor the debts of its regional governments.
So what were talking about here is bailout of epic proportions, you cant just bailout one bit as weve seen with Ireland, the whole nine yards gets dragged in.
Buts lets be conservative and say its a 300bn bailout needed, that obviously pretty much will all have to come from Germany. The other sovereigns can barely afford their own debts. so the question is, what will Germany do? Pay up or piss off?
Then you factor in that Spain isnt growing, its still in depression, so where does the money come from to repay the Germans, the interest payments alone will most likely spiral out of control if Spain cannot grows it economy.
So, it’s kind of a big deal really.
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There’s one more thought that may become significant – the world has never seen this kind of crisis and contagion before. The amounts of money and countries involved are unlike any previous bailouts. Greece, Ireland and likely Portugal and Spain to come. These are developed countries, not some developing war torn African nation were you might expect such events.
The question then becomes, what of the future. Its not clear at all, there could be many more shocks to come — or of course it could just be Tuesday.
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dartboy, the banks will obviously want to sell them but not cheap 🙂 They could potentially use the bailout money to provide a load more 100-120% mortgages, in an attempt to offload their repos and developer properties but at the same time maintain prices, i.e. an extension of what they did with the FROB money, just give better mortgage deals and not drop prices. The problem they have is that selling them cheaply, also impacts their existing mortgage book. So I bet they will resist with all their energy.
But they need to get rid, because they are costing the banks a fortune in maintenance and taxes. There may also be bailout conditions that force them to liquidate assets, if so, you’ll see a price collapse.
My bet is they will try to get away without a fire-sale first, and then just hit a brick wall because people still wont buy. But I think the eventual outcome will be a collapse in prices, a good 30% from this point.
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just read this makes it sound as if doomsday hasn’t arrived yet
The International Monetary Fund has sent a special unit to meet with the Bank of Spain, the Spanish Treasury and the nation’s largest banks to evaluate the country’s solvency, El Mundo reported, citing unidentified people familiar with the matter.
Once the evaluation is concluded, the IMF may offer Spain a flexible line of credit, an instrument offered to Mexico, Poland and Colombia in the past, the newspaper said.
Unlike a bailout, a flexible line of credit is a deposit that can be used by countries experiencing temporary financing problems, according to the newspaper.
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@dartboy wrote:
just read this makes it sound as if doomsday hasn’t arrived yet
The International Monetary Fund has sent a special unit to meet with the Bank of Spain, the Spanish Treasury and the nation’s largest banks to evaluate the country’s solvency, El Mundo reported, citing unidentified people familiar with the matter.
Once the evaluation is concluded, the IMF may offer Spain a flexible line of credit, an instrument offered to Mexico, Poland and Colombia in the past, the newspaper said.
Unlike a bailout, a flexible line of credit is a deposit that can be used by countries experiencing temporary financing problems, according to the newspaper.
I dont think its arrived yet either, but its not far off.
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News today, 18th January 2011…
In this week’s news, there are signs that we could be close to resolving the question marks over a key part of the Spanish economy.
The Spanish government is attempting to lay its cards on the table and demonstrate, once and for all, the solvency of its banking system.
Doubts over the finances of Spain came to a fore last year as Ireland joined Greece in requiring a substantial bailout from the EU to support its banks.
With the world economy only just emerging from the worst depression in living memory, it was no surprise that concerned investors feared repeat performances from other indebted countries.
After the European banking stress tests last July, the savings banks or ‘Cajas’ were shown to be the weak link in the Spanish banking system.
Major restructuring has already taken place with the Cajas, with complex mergers cutting costs and shrinking their number from 45 down to 17.
However, continued concern about these banks has been affecting sovereign debt, which in turn, has affected the banks and their ability to raise money.
In a bold move this week, the Prime Minister announced plans to clean up the country’s network of savings bank by disclosing their exposure to bad loans.
Finance in the form of the state’s ‘Fund for the Orderly Restructuring of the Banking Sector (FROB)’ is ready to provide capital where needed.
Most analysts believe this month’s disclosure exercise will reveal that Spanish banks need a little more capital, but not enough to cause Spain to go cap-in-hand to the EU for cash.
This opinion is shared by the governor of the Bank of Spain, who said that ‘perception is much worse than reality’ and that ‘the country’s savings banks will need no more government-assisted capital than that already committed’.
If the Cajas do reveal their true exposure to be manageable, the funding markets will regain some confidence in Spain which is clearly suffering from an avalanche of risk hype.
This was evidenced by EU leader Van Rompuy who called it ‘absurd’ that market valuations of default risk for some eurozone countries were bigger than for emerging markets like Ukraine or Argentina.
And, in what could be argued as an immediate effect of these confident announcements, investors showed renewed appetite for Spain with a successful bond sale later in the week, at discounts lower than anticipated.
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@ethnatkev wrote:
News today, 18th January 2011…
In this week’s news, there are signs that we could be close to resolving the question marks over a key part of the Spanish economy.
The Spanish government is attempting to lay its cards on the table and demonstrate, once and for all, the solvency of its banking system.
Doubts over the finances of Spain came to a fore last year as Ireland joined Greece in requiring a substantial bailout from the EU to support its banks.
With the world economy only just emerging from the worst depression in living memory, it was no surprise that concerned investors feared repeat performances from other indebted countries.
After the European banking stress tests last July, the savings banks or ‘Cajas’ were shown to be the weak link in the Spanish banking system.
Major restructuring has already taken place with the Cajas, with complex mergers cutting costs and shrinking their number from 45 down to 17.
However, continued concern about these banks has been affecting sovereign debt, which in turn, has affected the banks and their ability to raise money.
In a bold move this week, the Prime Minister announced plans to clean up the country’s network of savings bank by disclosing their exposure to bad loans.
Finance in the form of the state’s ‘Fund for the Orderly Restructuring of the Banking Sector (FROB)’ is ready to provide capital where needed.
Most analysts believe this month’s disclosure exercise will reveal that Spanish banks need a little more capital, but not enough to cause Spain to go cap-in-hand to the EU for cash.
This opinion is shared by the governor of the Bank of Spain, who said that ‘perception is much worse than reality’ and that ‘the country’s savings banks will need no more government-assisted capital than that already committed’.
If the Cajas do reveal their true exposure to be manageable, the funding markets will regain some confidence in Spain which is clearly suffering from an avalanche of risk hype.
This was evidenced by EU leader Van Rompuy who called it ‘absurd’ that market valuations of default risk for some eurozone countries were bigger than for emerging markets like Ukraine or Argentina.
And, in what could be argued as an immediate effect of these confident announcements, investors showed renewed appetite for Spain with a successful bond sale later in the week, at discounts lower than anticipated.
If all this is true the cajas and banks must of had massive reserves in the first place with so much bad property debt on their books or is it a case of once again not being realistic about this
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http://news.kyero.com/2011/01/18/spain-grabs-the-bull-by-the-horns/
On the other hand further scrutiny could highlight that the Spanish banks are hiding their bad debts in several dubious schemes and failing to mark to market, in collusion with the government who fabricates the statistics to support its banks.
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They reckon the stock held by banks and promotors of unsold properties has been exagerated:
…According to the calculations made by the construction management president Seopan, David Taguas, there are currently around 350.000 properties in stock pending a sale in the hands of promotors and banks. He said “It is a lot and it is a bad situation, but not as bad as it appears, as once things get back to normatlity, this is the equivalent of what would be a years demand of property for sale in a normal year”.
He quoted on TVE (Spanish TV), he has assured everyone that “the stock figures of unsold flats that are in the hands of promotors and banks, has been exagerated”. “The problem lies with the ones the banks hold” he added. Taguas considers that the “Special Infrastructure Plan” (PEI) put in place by the “Ministerio de Fomento” “can offset the effects of the budget reduction for public works” and believes that while “there are difficulties in financing the plan,” “between everyone we can pull through this situation” and that is what will mitigate the effects of adjustment in public investment”
roughly translated….
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Peter, an article in FT Alphaville was pointing out that the Spanish banks are seeing pressure on margins of new business, caused by higher wholesale funding costs. These wholesale funding costs have created a battle for customers deposit, having to give ever higher interest rates to customers (be it corporate or retail), hence squeezing margins further.
http://ftalphaville.ft.com/blog/2011/01/17/460776/more-spanish-banking-negativity/
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For starters there is not one Caja in Spain that is solvent (possibly Caja Madrid or la Caixa, but that is still a stretch). Evidence by the fact the government demanded that these ‘solvent’, ‘healthy’ entities join each other, and had to give them money to do so! (Go to Hugh Edwards blog and read about the banks, he has the best handle on it). Heck under simple observation, where I live not a single caja office has closed, nor employee laid off and we have all of them here, not 1 has closed and after the FROB one caja has 8 local offices. (I live in the real Spain, very little tourism, no beach, blue collar)
I had a conversation with a very high director in one of the biggest Cajas in Spain (thank goodness for golf). He basically told me that if in this year his caja has 100,000 houses ’embargado’, by years end next year, if they are around, they will have 400,000…(interesting to note here, that shows their mentality is not to sell off in a fire sale). He also said the bank of Spain has indicated that by Jan of next year the government only wants 8 cajas.. The reasoning is simple, they can give them more money, they will be ‘too big to fail’, at that size they have to stick to standard quarterly reporting and be forced to get external investments. (sounds suspicious about the ‘friend’, but if you do not believe me mark my words we will see how many cajas there are in 1 year).
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kgpoc, you wont convince the rose tinted spectacle gang 🙂 Not worth the effort, better to have a discussion with those who have a clue.
But interesting observations as ive had a similar conversation with a brit who work in the **** banks repo sales management team. They are apparently dragging their feet getting the repos through the courts to delay them being passed onto the banks books. Theres a huge backlog of court cases which will take literally years to complete at the current pace.
Obviously its a sham, the international money markets are not stupid, hence they wont lend to Spanish banks on any terms and the Spanish banks are having to go to the ECB.
Regarding the mergers of the Caja’s, yes, its been fudged. As you point out, synergies are not being realised or even attempted. Its all too political.
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@adiep wrote:
… better to have a discussion with those who have a clue.
here he goes again…
…says the drama queen himself: apocalypse, doomsday, judgement day, day of reckoning 😆 you should have been a movie director…must remember to get the popcorn out later…shame dartboy, with the flexible line of credit post, brought all the build up to a crashing end for you, (that is not a dig a dartboy by the way)…I suppose you have more of a clue than the whole of Spains government,spanish bankers and the rest…as this is where this information is coming from…I do agree with a lot of what you say, even though you do remind me of Victor Meldrew, but the personal attacks are unnecessary, lets just try to keep to the discussion in hand and leave out the childish digs adiep…it lets your image down….
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@ethnatkev wrote:
They reckon the stock held by banks and promotors of unsold properties has been exagerated:
…According to the calculations made by the construction management president Seopan, David Taguas, there are currently around 350.000 properties in stock pending a sale in the hands of promotors and banks. He said “It is a lot and it is a bad situation, but not as bad as it appears, as once things get back to normatlity, this is the equivalent of what would be a years demand of property for sale in a normal year”.
Well sales are now normal, not artificially inflated by easy money and excess equity from UK and Ireland’s property boom.
So on current rates it might take seven years to sell off that number and its increasing isn’t it? There are over 4% non performing loans officially, I wonder how many repercussions in the pipeline that is.
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@peterhun wrote:
@ethnatkev wrote:
They reckon the stock held by banks and promotors of unsold properties has been exagerated:
…According to the calculations made by the construction management president Seopan, David Taguas, there are currently around 350.000 properties in stock pending a sale in the hands of promotors and banks. He said “It is a lot and it is a bad situation, but not as bad as it appears, as once things get back to normatlity, this is the equivalent of what would be a years demand of property for sale in a normal year”.
Well sales are now normal, not artificially inflated by easy money and excess equity from UK and Ireland’s property boom.
So on current rates it might take seven years to sell off that number and its increasing isn’t it? There are over 4% non performing loans officially, I wonder how many repercussions in the pipeline that is.
Those are the words of David Taguas, not mine…so don’t shoot the messenger 🙂 but valid point, Peterhun
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@ethnatkev wrote:
@adiep wrote:
… better to have a discussion with those who have a clue.
here he goes again…
…says the drama queen himself: apocalypse, doomsday, judgement day, day of reckoning 😆 you should have been a movie director…must remember to get the popcorn out later…shame dartboy, with the flexible line of credit post, brought all the build up to a crashing end for you, (that is not a dig a dartboy by the way)…I suppose you have more of a clue than the whole of Spains government,spanish bankers and the rest…as this is where this information is coming from…I do agree with a lot of what you say, even though you do remind me of Victor Meldrew, but the personal attacks are unnecessary, lets just try to keep to the discussion in hand and leave out the childish digs adiep…it lets your image down….
Note: No one has attacked the idiot (until this point) yet he is convinced he is being “personally” attacked. Get a grip will ya, you big cry baby.
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@adiep wrote:
@ethnatkev wrote:
@adiep wrote:
… better to have a discussion with those who have a clue.
here he goes again…
…says the drama queen himself: apocalypse, doomsday, judgement day, day of reckoning 😆 you should have been a movie director…must remember to get the popcorn out later…shame dartboy, with the flexible line of credit post, brought all the build up to a crashing end for you, (that is not a dig a dartboy by the way)…I suppose you have more of a clue than the whole of Spains government,spanish bankers and the rest…as this is where this information is coming from…I do agree with a lot of what you say, even though you do remind me of Victor Meldrew, but the personal attacks are unnecessary, lets just try to keep to the discussion in hand and leave out the childish digs adiep…it lets your image down….
Note: No one has attacked the idiot (until this point) yet he is convinced he is being “personally” attacked. Get a grip will ya, you big cry baby.
ok Victor… so calling me “clueless” (… better to have a discussion with those who have a clue….your quote by the way…) is not a personal attack??!! I certainly take that as a personal attack and am very offended by it… and the rest of your childish digs for the last few days…aimed at me directly… They are there for EVERYONE to read, own up to your childish behaviour for a change…I have also read numerous of your previous posts with all the name calling at other posters who don’t agree with your views…even Mark has pulled you up on it in the past…and now you call me an idiot…this appears to becoming a habit with you… you said that to get a reply and now you have it.
you are the one who needs to grow up…. they say when you approach pension age you revert to a baby again….seems this it true in your case….You need to calm down Victor Meldrew and take a chill pill, your true colours are shining though, the intelligent image you are trying to portray is gradually flying out the window, still, they say when you are losing an argument you revert to personal insults, so I suppose you should give up now… 😆
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More bad news for Spanish banks
Unlucky Spain.
Declining ECB funding has been replaced in part with covered bond issuance (a natural progression given new regulatory emphasis on longer-term funding).
Unfortunately, funding-by-covered-bond is getting more expensive for them.
As Morgan Stanley notes, there’s been a rather significant increase in the cost of funding for Spanish banks in the covered bond market this month.
BBVA, for instance, managed to get away a €1.5bn three-year covered bond but at a spread of 225 basis points over mid-swap. Meanwhile Santander did a €1bn five-year covered bond at a 225bps spread. For context, in January last year, the banks were funding similar-sized programmes at just 50bps over swaps.
In the face of rising funding costs, we expect that the main source of funds will stem from incremental balance sheet deleveraging, especially in the peripheral countries. The effect of this, however, will be to place direct pressure on lending volumes, resulting in lower [net interest income] margins and lower growth rates in the wider economy.
http://ftalphaville.ft.com/blog/2011/01/19/463226/even-more-spanish-banking-negativity/
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@adiep wrote:
Paying more than RBS and Lloyds. And we thought they were basket cases.
From the same article
“In the face of rising funding costs, we expect that the main source of funds will stem from incremental balance sheet deleveraging, especially in the peripheral countries. The effect of this, however, will be to place direct pressure on lending volumes, resulting in lower [net interest income] margins and lower growth rates in the wider economy.”
They have to do something about this. Less lending is going to make it bloody impossible for Spain to get back to growth.
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Saw this on another site.
The property market has been almost non-existent this last year and now the first bank has declared, it looks like something will have to give very soon.
Banco Espanol de Credito, a retail-banking unit of Banco Santander SA said it has 10.4 billion euros ($13.7 billion) of risk linked to Spain’s real estate and construction industry. Spanish banks have “troubled exposure” to construction and real estate of 181 billion euros, according to the Bank of Spain. Madrid-based Pisos Embagados de Bancos has claimed that there are currently 100,000 foreclosed homes on the market and by the end of the year this figure will rise to 300,000.This is an alarming situation and the banks dumping another 300,000 properties with unrealistic values on the market will only support the already massively inflated property values – or will it push the prices down by sheer numbers?
In 2010 the new-build housing sector was just as bleak with new starts in Costa Blanca at the same level as they were in 1952, a tiny % of the starts 6years ago. Municipalities with less than 10 new homes started in 2010 include Benitatxell, Bigastro, El Campello, Castalla, Catral, Crevillente, Guardamar, La Nucia, Los Montesinos, Monforte, Monóvar, Pego, Polop, San Fulgencio, and San Miguel de Salinas, all familiar names in the holiday-home industry. -
More on the banks. Looks like everyone is honing on Spanish banks at the moment…
http://ftalphaville.ft.com/blog/2011/01/20/464296/when-spanish-bank-property-losses-go-irish/
When Spanish bank property losses go Irish
Posted by Joseph Cotterill on Jan 20 12:51.At what point does Spain’s banking crisis look as bad as Ireland’s?
At what point do solutions to that crisis look as bad as Ireland’s?
Around about now:
Out of €439bn of total exposure to property, developers and construction (P&C) in Spain, €180bn are “Problem Exposure” according to Bank of Spain (adding together NPLs, substandard, plus repossessed and acquired assets). This implies a 41% effective “problem ratio”, which means that a lot of potential P&C defaults have already crystallised and been recognised in one way or another. However, we still expect the P&C “problem ratio” to increase substantially: we now estimate 60%. This assumption (which implies more than 80% default for pure developers) is the most bearish we have ever used, much worse than Bank of Spain’s assumptions, and similar to the Irish experience…
The numbers are by Arturio de Frias Marques, Evolution Securities banking analyst.
And to put them one way for UK readers, they look a lot like Lloyds’ eventual losses from its HBOS property loan book.
Hence, the latest future costs from property losses to Spain’s public banks: €19bn, according to Evolution. Manageable (in time) via provisioning on their own, perhaps.
Cost to Spain’s private caja banks: €65bn. Not manageable on their own. Not by a long shot. Hence, more liabilities for Spain’s sovereign.
Caja clean-up
Now, that gets us on to whether current proposals for fixing the cajas still look far too much like how Ireland tried to refund and fix its banks by itself. To summarise a giant mess — a combination of state guarantees for banks’ refinancing, bad-banking the worst assets, and hoping the eventual losses wouldn’t overwhelm either.
They did. But back to the cajas.
You’re probably going to hear a lot about further restructuring of the cajas in the coming weeks. They’re already supposed to have merged themselves into restructuring vehicles, SIPs (Sistema Institutional de Proteccion), to pool the bad assets together and make taking a capital hit from writing those assets down easier.
Problem is, the SIPs — grandiosely endowed with names like Jupiter, Mare Nostrum, Breogan — look more like half-mergers and they still lack a decent enough capital ratio (ideally, you’d want 10 per cent Tier One regulatory capital). Oh, and we’re waiting for full disclosure of their property loans at the end of this month.
(Breogan was a Celtic king of Galicia who may have led his people to migrate to Ireland. One helluva bad association to pick for European post-crisis banks, no?)
So, solutions?
Evolution reckon it means perhaps €25bn of recapitalisation via existing caja assets — and even that is plumped up with €10bn of previous state capital injections — leaving €40bn-€50bn to be found elsewhere. Now, they think this could be done via a combination of raising private capital and more state capital injections.
OK, but the problem is that Irish banks were supposed to restructure using refinancing on private markets. These attempts blew up when their loss exposure made funding prohibitively expensive. And if caja losses now look like Ireland…
How about those capital injections? Spain’s Fund for Orderly Bank Restructuring (FROB) raises money for this by issuing debt in the market as a sub-sovereign agency. If all €50bn is raised like this, Spain would have to issue 20 per cent more sovereign debt in 2011 and 2012, Evolution estimate. Not an impossible burden, but pretty difficult for Spain right now as it struggles to keep borrowing costs low.
Even so, it’s clearly being considered. And via the WSJ on Thursday:
Spain plans to pour billions more euros into its troubled savings banks…
In a first step, Spain is preparing to issue €3 billion ($4 billion) in debt in coming days… people familiar with the matter said. Government officials are putting plans in place to eventually raise as much as €30 billion, according to these people, though some say the final tally will be less.
For those interested in Irish comparisons, this bit sticks out:
Government officials are also weighing the possibility of setting up a government-administered “bad bank” for the toxic assets of some of the cajas, according to one of the people familiar with the matter, although it is unclear how that would be funded and structured.
El Nama del sol, anyone? The point being that Nama was another way Ireland transferred dodgy liabilities from one balance sheet (banks) to another (sovereigns), creating a grim feedback loop, especially as loan losses took forever to leak through.
It’s not particularly advisable for Spain, we’d suggest. Spain has a real chance to force cajas into upfront write-downs of the assets right now.
Furthermore, there are already concerns about contingent liabilities from its banks — we’ve already seen proposals to target funding from EFSF or IMF sources at Spanish bank recapitalisation.
Might they be worth a dust-off?
Especially because Evolution is counting on the bigger Spanish banks to absorb their smaller shares of these bearish loan losses over time, with steady provisioning. But this needs sustainable funding costs to work.
Which considering the non-property future loan losses also out there…
… and plenty of other funding negativity – seems a really tough bet.
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