Spanish banks have been downgraded by Moody’s because of their counterparty exposure to the sovereign that backstops them which itself just had its credit rating downgraded by Moody’s because of its pledge to support the banks on which it depends for LTRO funding.
Or something. Read more
Spanish bank write-downs on residential mortgage loans, eh.
It’s something that had been vexing analysts before last week’s stress-test results from Oliver Wyman and Roland Berger, though these tests haven’t dived into individual bank loan books. That comes later. Read more
That’s €51.8bn (how precise) from Roland Berger… and €62bn from Oliver Wyman…
Update — Here are the reports in full (click images for docs): Read more
Q: In the case of Spanish bank recapitalization, why are you assuming that the public debt does not increase? We now know that government debt has increased by as much as EUR100bn.
A: The losses in the Spanish banking system existed prior to the announcement of the official loan. Most investors/analysts now estimate public recapitalization needs of close to EUR100bn. The official loan from the European Stability Mechanism (ESM) or the European Financial Stability Facility (EFSF) per se does not make the losses any bigger. Once the losses are acknowledged, the realistic choices are between Spain issuing bank recapitalization bonds or a bank recapitalization bond issued by the EFSF/ESM to the sovereign that subordinates the rest of government creditors (with the recapitalization bonds, Spanish banks can tap eurosystem liquidity). According to our calculations, existing bondholders are better off, all else being equal, with senior EFSF/ESM financial support at the concessional rate that is being suggested (3-4%) than with recapitalization bonds that would otherwise have to be issued. Read more
On the back of the glorious victory in yesterday’s Thomson Reuters Extel survey, Societe Generale’s Albert Edwards has a note out on Spanish banks (his emphasis):
The Spanish banking sector is a victim of deflationary policies enacted at the behest of German economic orthodoxy. A bailout will solve nothing. Read more
This is what prospective investors in Spanish sovereign debt have to consider, writes Gary Jenkins of Swordfish research:
That they are subordinated; Read more
Hat-tip to Charles Forelle for pointing out a feature of ESM creditor status that we really should have noted earlier. From the Treaty:
In the event of ESM financial assistance in the form of ESM loans following a European financial assistance programme existing at the time of the signature of this Treaty, the ESM will enjoy the same seniority as all other loans and obligations of the beneficiary ESM Member, with the exception of the IMF loans. 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
1) How do holders of Spanish bonds react to ESM subordination?
The cat’s out of the bag now, isn’t it. On the one hand Spain borrows up to €100bn for the bank recapitalisation which everyone knew was coming, but at a lower rate than everyone had priced into Spanish bond yields. Bond yield relief, maybe. Read more
Why shouldn’t equity and (at least in the short term) Spanish bonds rally?
“If the Spanish state has difficulty in financing itself outside Spain, then the difficulties will be even greater for those in the private sector…”
Circularity. Reinforcing the sovereign-bank loop. However you’d put it – this weekend’s ‘rescue’ deal for Spain’s banks seemed designed to avoid doing this. Or at least to avoid appearing to do so. Read more
Or, up to €100bn in EFSF and/or ESM loans channelled to the bank recap fund (with conditions on structural and bank reforms but without specific fiscal demands), while Spain itself carries on issuing in the market.
Click image for full Eurogroup statement:
Some light relief from Wednesday’s ECB mystery. From Bankia’s web site: Read more
“Oh, Bankia” has become a common refrain around these parts and this morning Joseph pointed out a few of the oddities surrounding Spain’s incipient bailout and a similarity or two with Ireland’s.
(What’s Spanish for GUBU again? H/T Conor Cruise O’Brien and Nomura’s Daragh Quinn). Read more
Starring A. Spanish Banker as the Cookie Monster, bank assets as cookies, and Mario Draghi as the Count:
Both: Eat! Count! Eat! Count! Eat! Count! Read more
The final number will exceed the €14bn Bankia needed to meet government-enforced provisions. The €19bn investment is in addition to an earlier €4.5bn government investment in preference shares which was flipped into equity, giving the state a 45 per cent shareholding two weeks ago. Existing investors face being all but diluted out of the bank unless they take up pre-emption rights to buy new shares.
The same number comes from El Mundo, which adds that two capital increases are planned — one for BFA, Bankia’s very messed-up parent, and for Bankia itself. Read more
Italy’s March balance of payments data showed a big net outflow for investment
This was something picked up by Deutsche Bank’s Alan Ruskin (and us, here) as suggesting an accelerating outflow of foreign capital from Italy, now that the LTRO glow had worn off. It appeared to be happening, worryingly, at a rate that was not being offset by Italian repatriation of capital. Read more
The capital monster listed in July 2011 at €3.75 a share. At pixel time, after a heavy fall during Wednesday trading (on this El Mundo report), the shares are hugging €1.20. Read more
Also a mandatory increase in real estate loan provisions to 45 per cent.
Selected flashes from Spanish economy minister’s press conference at pixel time… Read more
The Bank of Spain confirmed late on Wednesday that Bankia’s parent company has asked for a state loan to be converted into shares:
Statement on BFA-Bankia Read more
The Spanish government may be bailing out Bankia by injecting cash in return for contingent convertibles to the tune of some €7-10bn, but many analysts have reacted with something along the lines of: “Haha! That’s cute! They are like ever so slightly less delusional about the trouble their banking sector is in! Adorable!”
Bankia is no canary in a coalmine. It’s more like the first sign that the inevitable support of the banking sector is finally materialising. Indeed, prime minister Mariano Rajoy was quoted saying: ”If it was necessary to reactivate credit, to save the Spanish financial system, I wouldn’t rule out injecting public funds, like all European countries have done,” in an interview with radio station Onda Cero, as reported by the WSJ. Finally playing catch up, are we? Read more
Covered bonds. The sacred cows of the fixed income universe. The instruments which have never knowingly failed (thanks to their cover pool of secured assets). Magic bonds.
It should be news then that the cover pool backing Spanish multi-cedulas — Spain being one of the biggest issuers of covered bonds in Europe — is for the first time experiencing a wobble. Read more
From the Bank of Spain on Wednesday, with impeccable timing:
(Click to expand) Read more
Hold the phone… something very interesting in the Spanish banks <=ECB=> Spanish sovereign nexus came up at the end of last week.
Suggesting that it’s in better shape than the Italian version of the nexus. Read more
The Spanish bonds mini-crisis continues this week, so we thought we’d mention an excellent note penned by JPMorgan’s Flows & Liquidity team last week.
It touches on this theme of Spanish banks being less able to manoeuvre their balance sheets into more purchases of government debt. And on other oddities related to ECB liquidity ops… Read more
Beyond Thursday’s back-up in Spanish bond yields — questions about Spain’s banks.
How could there not be when they’ve been buying so much sovereign debt since the LTRO. Ever since December’s record jump of €22.5bn in purchases in fact, as banks began washing LTRO cash through the domestic bond market. (Chart via Nomura) Read more
Spanish banks must find €50bn ($66bn) from profits and capital this year to finance a clean-up of their balance sheets or agree to merge with another bank by May to gain an extra year’s grace, according to Luis de Guindos, Spain’s economy minister. Outlining the new centre-right government’s first big reform programme, Mr De Guindos said on Thursday that the aim of the rapid “one-off” clean-up of bad property loans was to “increase the confidence and credibility of the Spanish financial system”, the FT reports. Mr De Guindos said no public money was being used. However, banks that needed state help would be able to apply for high-interest loans from the Fund for Orderly Bank Restructuring (Frob). Bankers say the Frob will charge 8 per cent interest. The Frob’s capital is being raised from €9bn to €15bn by the state, and it has the power to deploy up to €99bn by borrowing money on its capital.
Just one name today, but hopefully it rams home why banks are using the ECB’s three-year liquidity. From BBVA’s latest results:
Making use of the new lending facility provided by the European Central Bank (ECB), BBVA took up €11,000m at the extraordinary 36-month auction on December 21. This figure is equivalent to the sum of its wholesale debt redemptions for 2012. It means that the Group has “liquidity coverage” and demonstrates its prudence in liquidity risk management in line with the profile of maturities in upcoming years. However, it does not imply that the Group will not issue debt in 2012 if conditions improve. Read more