BBVA and Santander reported deposit declines of about 1 per cent in the second quarter. While that represents a notable trend, it’s not yet one that should be called alarming.
Unless, points out Citi on Friday, you turn to the corporate and investment banking component in the deposit trend. Read more
We should remind ourselves that Spain’s banks need bailing out because of rampant property speculation in the past — and the banks’ prior resistance to acknowledging that many of the related loans had already gone bad.
Plenty of estimates on the depth of the resultant black hole are doing the rounds. The external auditors brought in to report on this, Oliver Wyman and Roland Berger, were supposed to produce their own numbers by the end of June, although there are now suggestions they will not do so until the end of July. What’s that old rule about bad numbers taking longer to add up than good ones…? Read more
History is scattered with examples of hubris.
Take the story of King Croesus of Lydia who arrogantly asked the well-known wise man Solon the Athenian who he believed to be the happiest man in the world, fully expecting that the answer would be none other than himself, the King. Read more
Leading hedge funds have profited heavily from a rally in European banking stocks in recent weeks and are wagering that their gains will continue amid fresh measures to inject liquidity into the financial system from central banks, says the FT. This year has seen some of the strongest performance numbers from equity-focused hedge fund managers since 2009. The average equity long/short hedge fund returned 3.8 per cent in January and is provisionally up 1.6 per cent for February, according to Hedge Fund Research. Bets in banks such as Italy’s UniCredit, Spain’s Santander and the UK’s Barclays have made some hedge funds millions. Among big hedge fund gainers in the past six weeks have been Toscafund, run by the former Tiger Management star trader Martin Hughes, which has seen its flagship fund gain 7 per cent. A more specialist fund run by Mr Hughes himself is up more than 18 per cent. Crispin Odey’s flagship European hedge fund rose 14.7 per cent in January alone while Lansdowne Partners saw its flagship UK fund rise 5.7 per cent. Fund managers are unequivocal that it has been the European Central Bank’s Long Term Refinancing Operations lie behind their gains.
Net profit at Spain’s Santander, the eurozone’s biggest bank by market capitalisation, fell 35 per cent last year to €5.35bn from €8.18bn in 2010 as the Spanish property market collapse and the eurozone debt crisis continued to erode earnings, the FT reports. Santander released results on Tuesday showing it barely made a profit in the final quarter of last year – net profit was €47m compared to €2.10bn a year earlier – after it set aside a €1.81bn fourth-quarter gross charge to clean up bad property loans in Spain. Over the year as a whole, the bank made total net extraordinary provisions of €3.18bn, largely because it is anticipating new provisioning rules likely to be announced on Friday by the centre-right government that took power in Spain in December. Bloomberg reports that the bank previously said it had about €1.5bn in gains from sales of insurance and auto loans unit stakes in the Americas to bolster its balance sheet. Santander has used those funds to partly offset the one-time provisions.
Spain’s new government is pressing for Bankia, a group of savings banks listed last year, to seek a merger with another Spanish bank in a deal that would create the country’s largest domestic lender by assets if it materialised, the FT says, citing unnamed bankers in Madrid. The three possible candidates are Santander, BBVA and Caixabank – the country’s biggest institutions. But the first two have remained profitable through the crisis thanks in part to their foreign investments, and their executives are wary of increasing exposure to the moribund domestic property market. The third, Caixabank in Barcelona, denied on Tuesday that it was in discussions with Bankia, in Madrid, over a possible deal. Bankia also said it was not contemplating such a merger. Spain’s economy ministry, responsible for the financial sector, reiterated the government’s call for a fresh round of bank mergers, while declining to comment directly when asked about Bankia.
A rough ride for UniCredit shares, and rights to buy its shares as part of the bank’s €7.5bn cash call, on Monday — they fell, got suspended limit down, and are dropping again (down 6.4 per cent) at pixel time.
It’s the rights’ first day of trading, so it’s worth asking why it’s so volatile. Read more
… we can just not call your bonds like you thought we would.
This is the tactic that Santander and Lloyds have seemingly been taking, as they try to get bondholders to exchange subordinated debt for senior bonds that improve capital. Read more
A number of large institutional investors have threatened to stop buying bonds issued by Santander after Spain’s biggest bank offered to exchange some of its existing debt into new instruments at what they consider punitive terms, the FT reports. The investors say they are unhappy with the terms of Santander’s debt exchange, in which it plans to boost its capital by getting investors to exchange €6.8bn of “subordinated” bonds – debt that ranks below other creditors – into new senior notes. In response, some intend to boycott future offerings from the Spanish bank. “It’s pretty unlikely Santander will be able to issue senior unsecured or covered bonds,” Roger Doig, senior financial analyst at Schroders, told attendees at a bank capital conference in London on Thursday. George Grodzki, global head of credit research at Legal & General, also criticised the terms of the debt exchange at the conference. Only 23.8 per cent of the bondholders have agreed to the debt exchange, according to a statement from Santander on Thursday, underlining the move’s unpopularity among investors.
Spain’s Santander, the biggest bank in the eurozone by market capitalisation, is quietly trying to sell a €3bn ($4.1bn) package of thousands of repossessed homes and plots of land to foreign investors to clean up its balance sheet, the FT reports, citing people familiar with the talks. But they say at least two of the interested potential buyers – the property funds of Cerberus and Morgan Stanley – are asking for discounts so deep that Santander is unlikely to strike a deal before the end of the year for fear of denting its capital ratios. At the end of June, Santander had a total of €8.3bn in foreclosed Spanish property assets, including finished apartments, buildings under construction and land repossessed from homebuyers and developers. For the Spanish banking system as a whole, the total is about €86bn, according to the Bank of Spain. A Santander deal could pave the way for further deals by smaller banks and savings banks and provide indicative pricing.
Where the sovereign goes, the banks follow. (And vice-versa, of course.)
Fitch and S&P downgraded a slew of Spanish banks on Tuesday evening. The rating rationales are pasted below. Read more
Breaking pre-market news on Friday,
- Santander UK posts £1.14bn trading profit before tax down 2 per cent on 2010 — statement and statement. Read more
Spain and Italy’s leading banks were the strongest performers in last week’s European stress tests, in a surprise result that could help relieve the funding pressure that had been building on them, the FT reports. The European Banking Authority, which conducted the exercise, found an aggregate capital shortfall of only €2.5bn ($3.5bn) at eight banks, prompting criticism that the tests were not tough enough, in part because they did not account for any sovereign failure even as Greece teeters on the brink of default. A ninth bank, Germany’s Landesbank Helaba, also failed but refused to disclose its result as part of the exercise. But investors who have studied the results and associated disclosures of the EBA test say the clean bill of health given to the likes of BBVA and Santander in Spain, and Italy’s Intesa Sanpaolo, could provide a timely boost. Such groups have been dragged down by sentiment towards their home countries and have experienced difficulties securing short-term finance at reasonable rates. For more on the stress tests see FT Alphaville.
Lloyds Banking Group’s exposure to the riskiest kind of mortgages is more than double that of any of its top five rivals in what is potentially a ticking time bomb for Britain’s largest high-street lender, according to data published by the Bank of England. The FT reports the data showed that loans representing more than a quarter of Lloyds’ mortgage book are worth at least 90 per cent of the property value they are secured against. Royal Bank of Scotland and Santander have up to 12 per cent of loans with a similarly high loan to value, while Nationwide, Barclays and HSBC have smaller proportions again.
Hidden in the €144.2bn of euro-denominated covered bonds issued so far this year is a number.
€18.2bn. Read more
It’s gone all quiet in the other letters that make up a certain eurozone peripheral acronym…
Spain and Italy have both been contenders for the next eurozone hotspot, of varying degrees. And while Spanish and Italian banks have both been rushing to raise capital or prefund in recent months, to help stave off, or prepare for, peripheral contagion, they seem to have had varied success with their efforts. Read more
Net profit at Spain’s Santander, the biggest bank in the eurozone by market capitalisation, fell to €2.11bn ($3.11bn) in the first quarter of this year, 4.8 per cent down on the same period of 2010 and slightly worse than expected by market analysts, the FT reports. Santander said on Thursday that its international diversification had kept profits high, although continued strong performance from Brazil and the rest of Latin America failed to compensate fully for the weakness of continental Europe, especially the Spanish domestic market. Banco Sabadell, a smaller listed Spanish bank, also announced on Wednesday that its net profit fell 22 per cent to €84.2m in the first quarter from €108.4m in the same period of 2010. Santander nevertheless said business, margins and profits were all showing signs of improvement since last year. In Spain, gross income was up 7 per cent to €1.56bn from a low point in the fourth quarter of 2010.
Spanish lender Santander, US asset manager BlackRock and the investment group of former Citigroup executive Bob Willumstad are among would-be buyers of Citi’s consumer finance arm, which could fetch about $2bn, reports the FT. Willumstad, who left Citi in 2005 and later became chairman and CEO of insurer AIG, has teamed up with Blackstone and Carlyle, said people close to the matter, as private equity bidders scramble to join the auction. KKR is working with BlackRock on a possible bid for the unit, previously known as CitiFinancial. Bloomberg adds the group is one of at least four competing for the business, which has about $13bn in assets.
Here’s one to add to the Spanish banks about to lose their loan buffers theme.
Joseph Dickerson, bank analyst at Espirito Santo and last seen on FT Alphaville quoting Woody Allen and slapping a big buy on Lloyds, reckons Santander and BBVA need additional loan loss reserves of €10bn and €6bn each. On top of that, he thinks Spanish banks have generally underprovided for real estate losses — even releasing loan loss buffers in the second-half of 2010 to help boost their bottom lines. Read more
Breaking pre-market news on Tuesday,
- BHP Billiton to buy Chesapeake shale gas assets for $4.75bn – statement.
For some months now, all the Spanish banking concern has been focused on funding and net margin issues. Worries about loan losses (so 2009) have ebbed away.
On Wednesday, Société Générale’s banking team says it’s time to revisit the issue. Read more
Santander of Spain, the eurozone’s biggest bank by market cap, has launched a €4.29bn ($5.8bn) bid to buy all of Poland’s Bank Zachodni WBK, in which it agreed last year to buy a 70% stake from troubled Allied Irish Banks, reports the FT. The offer for AIB’s stake as well as the 30% owned by minority investors runs from Feb 24 to March 25. Santander has been expanding aggressively in emerging markets as well as in the US and UK in efforts to cut its dependence on Spain’s troubled domestic banking market. The Santander group’s net profit fell 8.5% to €8.18bn in 2010, largely because of provisions and write-offs for bad loans in Spain. The BZ WBK bid, announced on Monday, had been expected, although some analysts expected Santander to wait until it had regulatory approval for the purchase of the AIB stake. Santander is offering 226.89 zlotys a share, a premium of almost 10 zlotys on BZ WBK’s Friday close of 217 zlotys.
Breaking pre-market news on Thursday,
- Nippon Steel Corp and Sumitomo Metal Industries to merge – report. Read more
The chief executive of Santander, the Spanish bank, is expected to appeal against an imminent court judgment that could otherwise end his long career in finance, the FT reports. Alfredo Sáenz, CEO of Santander and number two to executive chairman Emilio Botín, might be obliged to step down due to a court ruling in a 14-year-old legal case against him, El Mundo, the Spanish newspaper, on Monday reported that the Supreme Court had decided in a majority vote to reject an appeal against Sáenz’s conviction in December 2009 for making false accusations as head of Banesto bank, although the court itself has yet to make public its judgment. The WSJ adds that Saenz could be entitled to appeal through Spain’s Constitutional Court but may have to quit if the court refuses to hear his appeal.
RBS is recommending a cautious stance on Spanish banks on Monday.
It’s nothing to do with provisioning for legacy assets or impairments, however. Read more
António Horta-Osório is taking his top two Spanish executives from Santander UK with him when he assumes the helm at UK high-street rival Lloyds Banking Group, reports the FT. Lloyds said Juan Colombas will join as chief risk officer and Antonio Lorenzo will take charge of wealth management and international, previously overseen by wholesale banking boss Truett Tate. The news came as it emerged that Eric Daniels, the outgoing Lloyds chief executive, had held preliminary talks about taking a senior advisory role at UBS, alongside former home secretary Lord Brittan. However, people close to the Swiss bank said the appointment was unlikely to materialise.
Have you ever heard of Inter-Alpha? We hadn’t until this weekend, although we tend not to frequent the conspiracy sites that lump it in alongside the world’s Bilderbergs, Rothschilds, and the Stonecutters.
It is a group of banks that meet together to, erm, discuss stuff, but there’s no conspiracy. The truth is that Inter-Alpha’s list of members, are much, much more intriguing than that. Read more
If a crisis is a terrible thing to waste, two crises are seemingly an excuse for tenuous interesting juxtapositions.
In a note out today, Santander’s European Equity Research team look at UK bank exposures to Ireland and (obviously) South Korea. So are the Brits in for a double blockbuster armageddon brought on by the twin spectre of sovereign default and nuclear war? Read more