“There are no analogies to be made. The Irish case is very specific. In the case of Portugal, the banking sector is relatively healthy and it is resilient and it has proven (so) over the last months and so that makes it a completely different situation,” Commission spokesman Amadeu Altafaj told a regular news briefing…
Well, everything’s relative, Mr Altafaj.
Portuguese banks avoided any kind of Irish-style construction boom in the 2000s and hence the ensuing crash. That’s certainly true.
But then we come to Spain. And Spain would be a rather different story for testing Europe’s bailout fund — and the eurozone project itself — in comparison to Portugal.
Plus we’re coming to Spain for a second time, let’s not forget.
We saw back in June that the Spanish interbank market dried up after Greek contagion hit Spain’s sovereign debt and put a spotlight back on losses suffered by its banks. Y’know, that grim sovereign-banking loop that we sometimes like to mention, and a version of which just brought Ireland to its knees.
It took a system-wide stress test to ‘reassure’ investors there wasn’t a problem here. Then again this stress test was passed with flying colours by every single one of the Irish banks now being called in for a bailout. Thus you can see why it might be worth running the ruler over Spanish banks one more time.
And what a surprise that we come to signs that Spanish bank liquidity already appears to be under pressure once again.
As pointed out in the Flows & Liquidity note put together by JPMorgan’s global asset allocation team (emphasis ours):
The most recent issues and debt exchanges came with a heavy premium relative to secondary market levels, suggesting that it is becoming harder and more costly for Spanish banks to refinance their debt. In Caja Madrid’s debt exchange this week, covered bonds were priced at 250bp above mid swaps. CajaMar’s covered bond issued at the beginning of the month was priced at 290bp over mid swaps. These levels are close to the wides of the summer…
So-called ‘healthy’ Irish bank bonds declining pre-bailout — check, to point out one first similarity. Meanwhile, in a few other signs of stress noted by JPMorgan’s analysts (click charts to enlarge):
The difficulties in debt capital markets, coupled with slower activity in the domestic repo market MeffRepo (Chart 1) [below], raises the chance that Spanish bank borrowing from the ECB will start rising again following four straight months of declines…
…the amount of refinancing facing the Spanish government and Spanish banks peaks in the spring, with close to €60bn of debt maturing in March and April together. [Chart below]:
The thing here is that volumes on the domestic repo market already looked pretty thin, while Spanish bank refinancing in 2011 is in itself small in scale compared to what could be coming in 2012. Definitely a market to watch, though. And also one carrying some déjà vu.
Fragmenting repo market access for Irish banks — check; a return of reliance on ECB funding — check; tricky refinancing in 2011 — check.
