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Spain: The Hole In Europe’s Balance Sheet

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Interesting research piece picked up by FT:Alphaville today, (apologies if it’s been posted already):

Spain: The Hole In Europe’s Balance Sheet

:

> Spain = Japan 2.0? – We argue that 1) the real estate crash in Spain is worse than is widely believed, 2)

Spanish banks are hiding their losses, and 3) investors are smoking crack if they believe that Spanish banks

are among the strongest in Europe, (see Forbes latest Spanish Banks In Top Form). If all these are true,

Spain will soon have zombie banks like Japan.

> Banks are hiding losses – We believe that Spanish banks are not marking their real estate loans to market

and are extending credit to zombie construction companies. They do this by 1) Getting a boost from

accounting changes, 2) Not marking loans to market, 3) Continued lending to zombie companies, 4)

Extending 40 year and 100% loan-to-value loans, and other bubble-like lending practices. We look at each

of these in turn.

>Spain is in deflation – In a deflationary environment, servicing debt becomes even harder. Even when

rates go to zero the real burden of debt goes up. That is why deflation is such a terrible thing. Eastern

Europe, Spain and Ireland are now all experiencing the beginning of deflation. We believe that we will see

much more deflation to come, which will have broad ramifications across the European banking sector.

>Who’s holding the bag? – The periphery countries are net debtors, and the rest of Europe is the net

creditor. When a debtor can’t pay, the creditor suffers. Germany, France and others will need to cope with

recapitalizing the periphery and Spain.

Edited by no accountant

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Interesting piece and spot on in its conclusions IMO. The Spanish (including expats who now live there) and their banks are still in denial about the trouble they are in.

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Interesting piece and spot on in its conclusions IMO. The Spanish (including expiates who now live there) and their banks are still in denial about the trouble they are in.

Yeah but it is lovely and sunny here with cheep wine and nice topless women on the beach

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A lot of truth there for sure, but isn't everyone else hiding stuff too? The whole financial system is like one giant game of 'b@stard Brag' :lol:

Edited by markinspain

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"Spanish banks are now running their own estate agents to hide problems"

Headline from the front page!

I told you - we investigated certain large UK Estate agent chains around 2006 on HPC.

All were owned by 'shady' Bank/Building society owned companies!

It's explains why loads of 'em haven't gone bust - selling minimal amounts of properties over an extended period!

Banks, Building societies/other Vi's who owned them (behind the scenes) were giving the impression they were selling them all off!

In fact this is one way 'they' control the house prices.

It only takes one agent shop to set 'artificial' higher prices in a town & the rest of the money grabbing b'stards follow suit!

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The article is spot on. As well as zombie banks, Spain has zombie houses that are being deliberately overpriced by the developers (i.e. the banks) in order to hide the bad-debts from the books. It would be interesting to see a graph of sales volumes for Spain over the past few years (if there have been any <_<:ph34r: ).

I think things will really get interesting when Germany and France really start growing again, as the ECB will then start increasing interest rates while Spain is still in deflation.

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Yeah but it is lovely and sunny here with cheep wine and nice topless women on the beach

A topical Spanish 'Bird' brand? :P

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Serial Topless Dollies?

That's S.T.D.'s in Spain!

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I think things will really get interesting when Germany and France really start growing again, as the ECB will then start increasing interest rates while Spain is still in deflation.
They won't be growing much if that have to bail out Ireland, Spain, Italy, Greece, Latvia, Lithuania and Estonia !

The deflation problem is the big 'Gotchya' in the euro single currency project. The only way for Spain etc to become competitive and regain full employment is to pay everyone less. The research piece thinks a total deflation of 30% would make them competitive. But then nobody can afford their mortgages. It will be carnage. Horrible. Look away else you'll be ill.

Edited by no accountant

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excellent bear food.

For example, a plot of land in Guanarteme (Las Palmas, The Canaries) belonging to

Fadesa, valued at €1 million, was revalued at €170 million once Martinsa took over

Fadesa to become Martinsa-Fadesa.

From one day to the next, and without apparent justification, another plot of land in

Culleredo (Galicia) was revalued from €1.5 million to €84 million, helping to inflate the

value of the assets on Martinsa-Fadesa’s books .

Then there is the example of the property in Puerto Real (Cadiz, Costa de la Luz,

Andalucia), which went from €336,000 to €65 million, an increase of 19,000%.

These are just some examples of dubious accounting practices highlighted in a report

by the court-appointed administrators handling Martinsa-Fadesa’s insolvency. These

practices allowed Martinsa-Fadesa to book a profit in 2007, despite its increasingly

precarious financial situation.

-----------------------------------

Mark to Fantasy. What could possibly go wrong?

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excellent bear food.

For example, a plot of land in Guanarteme (Las Palmas, The Canaries) belonging to

Fadesa, valued at €1 million, was revalued at €170 million once Martinsa took over

Fadesa to become Martinsa-Fadesa.

From one day to the next, and without apparent justification, another plot of land in

Culleredo (Galicia) was revalued from €1.5 million to €84 million, helping to inflate the

value of the assets on Martinsa-Fadesa’s books .

Then there is the example of the property in Puerto Real (Cadiz, Costa de la Luz,

Andalucia), which went from €336,000 to €65 million, an increase of 19,000%.

These are just some examples of dubious accounting practices highlighted in a report

by the court-appointed administrators handling Martinsa-Fadesa’s insolvency. These

practices allowed Martinsa-Fadesa to book a profit in 2007, despite its increasingly

precarious financial situation.

-----------------------------------

Mark to Fantasy. What could possibly go wrong?

they just doing as the bankers do.

FDIC are discovering this every day...assets valued to support the books, not the reality.

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they just doing as the bankers do.

FDIC are discovering this every day...assets valued to support the books, not the reality.

I just went to the toilet and discovered I own the world's largest, ultra-rare, brown diamond.

I have conservatively valued it at £172,000,000.

I am now rich. Rich I tell you!

Just off to the bank now to leverage my asset, brb.

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excellent bear food.

For example, a plot of land in Guanarteme (Las Palmas, The Canaries) belonging to

Fadesa, valued at €1 million, was revalued at €170 million once Martinsa took over

Fadesa to become Martinsa-Fadesa.

From one day to the next, and without apparent justification, another plot of land in

Culleredo (Galicia) was revalued from €1.5 million to €84 million, helping to inflate the

value of the assets on Martinsa-Fadesa’s books .

Then there is the example of the property in Puerto Real (Cadiz, Costa de la Luz,

Andalucia), which went from €336,000 to €65 million, an increase of 19,000%.

These are just some examples of dubious accounting practices highlighted in a report

by the court-appointed administrators handling Martinsa-Fadesa’s insolvency. These

practices allowed Martinsa-Fadesa to book a profit in 2007, despite its increasingly

precarious financial situation.

-----------------------------------

Mark to Fantasy. What could possibly go wrong?

Has it never accurred to you all of this property may have been significantly undervalued and it merely revalued it all at the correct price.

The cynicism on the forum never fails to amaze me.

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Yeah but it is lovely and sunny here with cheep wine and nice topless women on the beach

.....and the rents are next to nothing with high tenant security...why would you want to buy? ;)

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