Wednesday, Aug 26, 2009
Spanish Banks
Daily Finance: Are Spanish banks' growth strategies hiding problems at home?
There is a lot about recently on Spanish banks. This article suggests that when Santander bought back their debt at 82% they made a short term gain at long term expense, because they still need to borrow, and current rates are much higher (so over time their immediate savings are lost). Further that Santander has been and is increasing leverage while the underlying assets grow progressively shakier. Also despite the increase in Santanders shares, there has been an increase in short selling.
Posted by stillthinking @ 09:23 PM (412 views) Add Comment
3 Comments
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1. sybil13 said...
Santander is Nos 13 in the Worlds Safest Banks Top 50 see : http://www.housepricecrash.co.uk/forum/index.php?showtopic=112146&st=15
However this article seems to confirm that they could be in BIG trouble which is I suppose why Moodys downgraded A&L from C to D and Abbey earlier this year and downgraded Santander in July .
2. quiet guy said...
@stillthinking
Thanks for the warning. It seems that I'll have to revisit the vexing question of identifying a safe bank for savings that pays more than crumbs for interest.
"over-building (loans to developers and construction companies comprise 50 percent of GDP), led to Spain having as much unsold housing as the United States, but with one-seventh the population."
I knew the Spanish property market was bad but didn't know it was that bad.
"By offering loan terms like 100% loan-to-value ratio and a 40-year term, or shelving repossessed property at a subsidiary, the losses can be hidden for a time."
Another reference to 'subsidiary' banking to cook the books. This just gets better and better.
3. uncle tom said...
A quick flick through some new Spanish apartment prices leaves me concluding that asking prices are typically averaging 100% or more in excess of construction cost.
With such an excess of supply, how can such prices be justified?
More importantly, to what extent are the balance sheets of the banks dependant on these over valuations, and what will happen to the Spanish mortgage market when property prices fall?
There is also no natural buffer to stop prices falling below construction cost. That would see residential construction cease completely, but it could be many years before demand, coupled to the physical collapse of abandoned property; saw prices edge back toward the cost of construction.
It is perfectly possible that Spanish real estate might fall in value by 70-80%, and not subsequently rebound.
- What then for the banks?