Friday, Aug 21, 2009
Spanish banks are now running their own estate agents to hide problems
FT Alphaville: Are Spanish banks hiding their losses?
"The real estate crash in Spain is worse than is widely believed, much as the subprime problem was much worse than people believed...In order to hide from the effects of the real estate crash, Spanish banks have been buying properties before the loans on them go bad and trying to dispose of them through their own real estate companies. They have also come to own dozens of thousands of homes through debt for equity swaps. "
Posted by mountain goat @ 01:03 PM (519 views) Add Comment
6 Comments
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1. will said...
I don't know if Sapin are hiding their losses, but the UK certailny are.
2. refusetobuy said...
"Throg Aug 21 09:25 - No one ever expects the Spanish dynamic-provision"
3. uncle tom said...
Are Spanish banks engaging in a cover-up? Probably, although after reading the full text of this piece, I did have some issues with the logic..
An unfortunate consequence of being part of a currency block is that if your economy goes sour, relative to others using the same currency, then deflation can easily occur.
As public servants, and those in strong unions will be able to resist actual pay reductions, it follows that the more vulnerable workers will find themselves in an environment of falling wages and rising taxes.
Unemployment, meanwhile, will reach critical levels.
This is an obvious recipe for civil unrest.
The alternative of letting the currency (and debts) devalue, thereby heading off deflation and making tourism and inward migration more attractive - which in turn would generate employment - looks infinitely less painful.
There's just that little matter of the single currency to deal with..
4. jack c said...
Moneymarketing are carrying a similar article www.moneymarketing.co.uk/cgi-bin/item.cgi?id=192111&d=340&h=341&f=342
Spanish banks worst bet in Europe, says analyst Lee Jones - 21-Aug-2009
Economic analyst Variant Perception has accused Spanish banks of hiding losses and predict its economy will become like the economy of Japan in the nineties. In a report entitled: ‘Spain: The Hole In Europe’s Balance Sheet’, Variant argues that the real estate crash in Spain is worse than is widely believed and Spanish banks are hiding losses.The report says: “We believe that Spanish banks are not marking their real estate loans to market and are extending credit to zombie construction companies. We believe Spain is a disaster waiting to happen.” The analyst says Spanish developers’ outstanding loans have increased from Euro 33.5bn in 2000 to Euro 318bn in 2008 - a rise of 850 per cent. It says with construction sector debts this debt will increase to Euro 470, or 50 per cent of Spain’s GDP.
Also, the report goes on to argue that Spain’s unemployment rate is now at 17 per cent, with over one million completely unemployed families.
Variant estimates that the country has at least one million empty properties, but its house price index only reports house price decreases of around 10 per cent. It goes on to document evidence that the banks are not marking loans to market and are selling off repossessed properties with 100 per cent, 40-year loans. It also argues that the Spanish banks are continuing to offer credit lines to zombie construction firms.
The analyst goes on to compare Spain to Ireland, which is currently suffering the worst deflation in the world. It says: “We believe that Ireland’s experience is what Spain will see more of in the months ahead. Almost all of Ireland’s banks have been taken over by the government and we believe Spain will be more like Ireland than any of its European neighbours.”
It adds: “Investors are smoking crack if they believe that Spanish banks are amongst the strongest in Europe. We recommend shorting to being underweight Spanish bonds and equities, particularly banks, builders and anything related to the consumer.”
5. James said...
Agree, correct. The situation in Spain is much worse than generally seen in the news. Spanish banks are (of course!) trying to hide the worse. Big massive defaults on mortgage payments are happening now all over the place. The spanish government was very proud in Sept.2008 their banks didn't participate in the MBS, CDO, CDS etc. parties, but were quick to hide the big losses on underwater mortgages. How long they can keep hiding this from the public eye is now the big question for me. Spain; lowest productivity in Europe (in 2005 productivity was at the same level as Sweden in 1973 !), highest european unemployment rate (going to 20%), biggest importer of energy in Europe , highest rate of workers with temporary contracts (>30%), highest home-ownership, biggest housing bubble in Europe (except for UK probably), lowest medium salary, main sectors; construction (now at zero, for many years to come 0), cars (guess what), etc. tourism (most tourist from UK; guess what...). Of all european countries Spain's growth was most dependent on credit probably (any 'official' economist reading this? can you agree?), too many foreigners who are dependent on work in construction, social security benefits run out after 2 years (now temporary measure to give some of the people who don't get any benefit 420euro... (try to pay rent, kids, car payment, house payment with that).
Summarized; Spain, we haven't seen anything yet, fasten your seatbelts!
6. bellwether said...
Europe as a whole is hiding the extent of bank losses.
But then we are in a situation where only derivative positions have been admitted too globally, and I understand Euro banks weren't so exposed to that, just to gross lending on commercial and domestic real estate and the Baltic Boom.
ie they are covering up but so is everyone else for now