- This topic has 18 replies, 6 voices, and was last updated 13 years, 7 months ago by
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I am sure most forum contributors are aware that the Spanish Government are currently reorganising the Caja’s, (regional savings banks) reducing their number with mergers and forcing most to go public on the Spanish bourse. The majority of these Caja’s are basically insolvent as a direct result of the property crash.
There had been recent press speculation that the Spanish government would bail them out to the tune of 50 bn Euros and add 5% to their deficit.
Today it has been announced the amount of state support will be 25bn Euros. The remainder provided from private capital.
It remains to be seen if investors think putting up substantial capital into bankrupt institutions despite regrouping is a good idea.If this plan fails the prospect for future property loans for the ordinary saver in Spain is poor indeed. It will prolong the slump and values will continue to fall.
RBS have also reported today on the prospects for the Spanish economy and property market. Here is a small quote:-
RBS said Spain remains caught in a vice of tightening fiscal policy and a deepening property slump that may culminate in a 40pc fall in house prices, eroding the solvency of the cajas. The Madrid consultants RR de Acuna estimate the overhang of unsold homes at 1.2m.
Read more:-
http://www.businessweek.com/news/2011-01-21/spain-s-cajas-repair-key-to-recovery-el-erian-says-tom-keene.html
http://www.telegraph.co.uk/finance/financetopics/financialcrisis/8279872/Spain-tempts-fate-with-minimalist-bank-rescue.html -
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The point is this action and the uncertainty of private capital to refinance these banks is bound to have a further negative long term impact on the property market.
Banks are not going to lend money they need to satisfy the stringent Basel 111 rules plus the extra measures the government has announced. -
However it pans out, its not going to be good for the property market. Im guessing they will use the money to try and sell the repos they have, by offering more 100% mortgages. They have to offload these properties, but to do that, they need to write them down and they cant write them down until they get these funds, else they will be insolvent. So quite probably the bailout will coincide with drops in prices of the banks properties. They will then use the bailout capital to offer mortgages on those properties.
Well… thats my take on it.
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I have the opportunity to purchase a repo from a Bank that I already have a mortgage with. As such the Bank knows me. The account has been running without any problems.
I have been offered 60% LTV, no subrogation so perhaps higher interest margin and opening fee. My decesion will depend on the price that is being offered.
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Logan, what you posted would be the practise of private organisations. In this instance Banks. If they never off loaded them on the contrary due to their stubborness not reducing interest rates before the anniversary, not converting accounts to intrest only for a while. They have ended up with proporties on their book & in turn either a non performing loan or unsold property.
If private institutions behave this manner, what chance a nationlised Bank to be shifting stock.
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I’m only speculating Shakeel but my instincts are the government will step in when and if private capital fails. A condition of rescue must surely be the off loading of repo’s and the write off of bad debt.
The government will want a clean sheet before they jump into that particular bed. At the moment they seem to want investors to take on at least half the burden. Will it work? Perhaps, but I’m sceptical. -
The problem the cajas and everyone else has with the Spanish property market is one of valuation. Stripping aside fanciful speculation from all sorts of quarters, the only reliable figures are those of actual sales records held at the land registry.
But in a sick and non-performing market, are those actual figures a true reflection of the market? First of all the figures are distorted by large numbers of foreign buyers who are often prepared to pay unrealistic prices just to gain a foothold in the sun, but secondly, and more importantly, with such few transaction taking place, how can any comparison be made with much larger numbers in previous years?
The cajas are basing their valuations against data from their own valuers, and what have they got to go on? Land registry figures based on such a low number of transactions that they become meaningless.
And that’s why their property portfolios are hopelessly optimistic, and it’s hardly in their interests to complain. Large scale auctions might work, but where would the bidders come from? There are rich European institutions, but they became rich by treading cautiously and are unlikely to be seduced by flamenco music and sangria. Or the sun.
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One of the fundamentals of investments is to who the management is i.e who are they, what has been their track record. In the case of private investotrs taking half the burden. Why should they ?f the same management with a proven record of bad management are still there & no one has even set the management musical chairs for the music to start.
buying half of bad loans are as good as not buying 100% of the basd loans.
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@Rocker wrote:
The problem the cajas and everyone else has with the Spanish property market is one of valuation. Stripping aside fanciful speculation from all sorts of quarters, the only reliable figures are those of actual sales records held at the land registry.
But in a sick and non-performing market, are those actual figures a true reflection of the market? First of all the figures are distorted by large numbers of foreign buyers who are often prepared to pay unrealistic prices just to gain a foothold in the sun, but secondly, and more importantly, with such few transaction taking place, how can any comparison be made with much larger numbers in previous years?
The cajas are basing their valuations against data from their own valuers, and what have they got to go on? Land registry figures based on such a low number of transactions that they become meaningless.
And that’s why their property portfolios are hopelessly optimistic, and it’s hardly in their interests to complain. Large scale auctions might work, but where would the bidders come from? There are rich European institutions, but they became rich by treading cautiously and are unlikely to be seduced by flamenco music and sangria. Or the sun.
Good points Rocker. Its unlikely the Chinese are going to come riding to the rescue to buy a load of over-priced housing developments. The Caja’s will really struggle to get private funding if they dont open up and become more transparent. Investors will want to know what their inventories are really worth and they will take a pessimistic view when assessing that. They want to know what liabilities exist now and may appear in the future. Not information the caja’s have been upfront with in the past.
Also, the links with local crooks…. err, I mean politicians, will put many off. So they are really going to have to reform themselves if they are hoping for private investment.
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@adiep wrote:
So they are really going to have to reform themselves if they are hoping for private investment.
It’s the Spanish government which are forcing through reforms, not the Caja’s.
http://www.elpais.com/articulo/english/Bank/fund/lures/investors/with/caja/reform/plan/elpepueng/20110120elpeng_10/Ten
As the article points out the principle reason apart from their financial instability is because cash is currently available from FROB and the Basal 111 rules would make it impossible for these Cajas to continue.
It is obvious the cajas will have to off load their non performing assets(repos) and write off their bad debts before any investment other than FROB will be available.
The other reason the government want the caja problem out of the way is political. As long a there remains a question over the stability of Spain’s financial system the greater pressure there will be to force Spain into a bail out with all the attendant consequences.
The final sentence in that El Pais article reads:-
the report Recommends Greater intervention by the Bank of Spain to clear up the “opacity” Their surrounding ownership and Prevent Them from Being Run According To Political criteria.
Mmmm I wonder if anyone has told the regional heads of government that! -
@Rocker wrote:
Stripping aside fanciful speculation from all sorts of quarters, the only reliable figures are those of actual sales records held at the land registry.
But in a sick and non-performing market, are those actual figures a true reflection of the market?
Quite simply Rocker the answer is no. The official figures have long been and still are way out. The main reason being that until quite recently under the table cash as part of a property transaction was the norm. This not only distorted past figures but given the long timeframes associated with the property market also the current ones. Even if you assume that all transactions are now being correctly lodged which I very much doubt.
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I had forgotten about the ‘black’ money paid on property transactions, and definitely shouldn’t have done.
I also forgot to mention the impossibility of using a multiple of average earnings, where black money again plays an important part.
Only a few years ago, either practice would have distorted the figures by at least 20%, it’s probably less now, but who actually knows?
The Spanish central government has settled for an easy life in the past, more or less letting the autonomous regions get on with it, which has led to malpractices on a massive scale, filtering all the way down to mayors granting building licences to the highest bidders and notary’s offices still having separate ‘counting’ rooms used by the interested parties apparently without the official’s knowledge.
What emerges at the end of it all is anybody’s guess.
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Only a few years ago, either practice would have distorted the figures by at least 20%, it’s probably less now, but who actually knows?
Truth is, nobody.
I take any figures coming out of Spain, especially the official ones, with a very large pinch of salt. In terms of property prices the least worse of those providing indexes is probably Tinsa. Even they are suspect. From looking at their past record, I believe their figures are running 1-2 years behind what is actually happening on the ground.
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I could say that I know what’s happening on the ground because I’m on the ground, but it’s a bit presumptuous, peculiar to a tiny area of this large country.
I’ve observed property prices falling by something like 40% since 2008, and committed myself to predicting another fall of 30% in the thread for 2011 prices.
At the same time, I’ve admitted doubts about the end of this year and 2012, the demand for a place in the sun is as strong as ever. Spain has got so much going for it that recovery is inevitable, and it’s just a question of time.
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Recent reports in the Spanish media yesterday suggest that the majority of the Caja’s have yet to come clean on about 80b Euros worth of bad property loans.
That may be no surprise but what has changed is the Spanish government’s insistence that the Caja’s must raise tier 1 core capital by 10% by September this year. That exceeds the Basle 111 rules and has been done to create market confidence and alleviate fears of contagion from the overspill of Ireland and Portugal’s sovereign debt issues.
Since only about 5 of 17 Caja’s in Spain passed last years weak EU bank strength tests it’s unlikely they will be able to meet this new level of requirement even with the planned mergers.
The outcome almost certainly is nationalisation which will result in their eventual liquidation. Insolvent banks simply cannot survive even with cash from bailout funds.
The core capital rules are just too tough.
Private capital is also unlikely to come to their rescue.
If Leman Bros can fail so can a bunch of obscure Caja’s. In any case why would any investor think it a good idea?
What then are the consequences for Spain’s future property market?
The larger commercial banks in Spain, with a couple of notable exceptions are also struggling simply to meet Basle core capital rules and come to terms with their portfolio of bad loans. I doubt therefore that financing any new property loans lies at the top of their corporate agenda.
Without finance the market inevitable stagnates further.
Jose Manuel Campa, Spain’s economy secretary said recently, “astute investors realise right now may prove to be the optimal moment to buy a house in Spain.”The Germans are coming back. We need the English, too”.
Until Spain ends the mindset of economic dependence on property and construction recessions in Spain will become ever longer and part of the fabric.
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