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Optobear

Spain And Its Economy

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Ambrose Pritchard was very disparaging about Spain,

http://www.telegraph.co.uk/money/main.jhtm...1/ccview121.xml

This is the healthy part of Europe. Further south, we are not far away from civic protest. BNP Paribas has just issued a hurricane alert for Spain.

Finance minister Pedro Solbes said Spain is facing the "most complex" economic crisis in its history. Actually, it is very simple. The country was lulled into a trap by giveaway interest rates of 2pc under EMU, leading to a current account deficit of 10pc of GDP.

A manic property bubble was funded by foreigners buying covered bonds and securities. This market has dried up. Monetary policy is now being tightened into the crunch by the ECB, hence the bankruptcy last week of Martinsa-Fadesa (€5.1bn). With Franco-era labour markets (70pc of wages are inflation-linked), the adjustment will occur through closure of the job marts.

I was wondering about Santander - there were lots of their billboards on view at the German GrandPrix, and Santander are seen as the great hope for saving A&L.

Does anyone know how large Santander group are? They seem to be almost in the HSBC league. Furthermore, how badly are they likely to be affected by the house price situation and deficit in Spain? They are a large player globally (it seems), but they don't attract the same level of scrutiny (at least in the UK) as our homegrown banks. It seems that with A&L they are accepted as being a rock-solid institution - with very little discussion or scrutiny.

edited for formatting

Edited by Optobear

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While all Spanish banks are exposed, Santander is probably exposed the least, relative to its capital. Not only is its size largely attributable to foreign holdings (particularly in Latin America), but it also divested itwself of a lot of its construction related risk in 2006 and 2007. In "Operación Brick", Santander sold and leased-back all of the real estate (mostly branch offices) it owned in Spain. An enormous STR at the top of the market...

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While all Spanish banks are exposed, Santander is probably exposed the least, relative to its capital. Not only is its size largely attributable to foreign holdings (particularly in Latin America), but it also divested itwself of a lot of its construction related risk in 2006 and 2007. In "Operación Brick", Santander sold and leased-back all of the real estate (mostly branch offices) it owned in Spain. An enormous STR at the top of the market...

Odd how large exposure to Latin America would have been considered a bad thing historically for a bank, but now is good diversification!

Good timing to sell off the property (especially if they didn't lend money to the people who bought the property.)

Does Spain have a similar regulatory regime as the UK? I'd guess that it might be stricter with more central EU oversight?

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While all Spanish banks are exposed, Santander is probably exposed the least, relative to its capital. Not only is its size largely attributable to foreign holdings (particularly in Latin America), but it also divested itwself of a lot of its construction related risk in 2006 and 2007. In "Operación Brick", Santander sold and leased-back all of the real estate (mostly branch offices) it owned in Spain. An enormous STR at the top of the market...

I think that overal the Spanish economy is far more diversified than many care to acnowledge, Telefonica being another case in point.

One could argue that overall the Spanish have played a blinder - Brits buying overpriced property in Spain en-masse has provided the investment capital for the spanish to hoover up some serious British companies, including O2, BAA and now A&L

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I think Santander is only 30% exposed to Spain. They seem to be the best of the bunch.

Your main worry is that they will impose Abbey-like customer support levels on A+L (although speaking from experience A+L are pretty bad as well!)

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I think that overal the Spanish economy is far more diversified than many care to acnowledge, Telefonica being another case in point.

One could argue that overall the Spanish have played a blinder - Brits buying overpriced property in Spain en-masse has provided the investment capital for the spanish to hoover up some serious British companies, including O2, BAA and now A&L

Interesting thought. The Spanish have sold of their land and turned it into assets in foreign companies. Is that what happened? But did the companies buying up O2, BAA, etc. have to raise their cash from debt? We've seen a lot of venture based buyouts over the last couple of years based around borrowing huge sums cheaply, and dumping it onto the balance sheet of the takeover target. Those funds are presumably just as much of a reset problem as RMBS?

Everyone is pointing the finger at Iceland now, with doubts cast on some of their institutions. During the exuberant bubble phase it seems that the UK was happy to take wealthy overseas acquirers at face-value, while sometimes, if it seemed too good to be true, then it probably was too good to be true.

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I think Santander is only 30% exposed to Spain. They seem to be the best of the bunch.

Your main worry is that they will impose Abbey-like customer support levels on A+L (although speaking from experience A+L are pretty bad as well!)

I don't have worries in that direction, I'd have nothing to do with any of those that you've talked about. Most of my exposure is with Nationwide or HSBC, and I am much more familiar with where and how they operate, how they got to where they are now, and their exposure internationally. That was why I wondered about Santander, it seems to be viewed as HSBC mark II, but is much more recent.

Rapidly growing companies are always interesting, you can think of Enron and Google as being the opposite ends of the spectrum for rapid growth. Rapid growth brings great returns but also great risks.

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Having just got back from Spain (Ibiza to be precise), it does look a bit grim for their economy.

On the tourist front, there seemed to be 10-20% less people there this time last year. "Se vende" signs are up on many apartments and I believe there are couple of developments in San Antonio that are not going to be finished anytime soon.

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The Spanish economy is in dire trouble but if you went there today on holiday, because of the euro sterling exchange rate, you would find it very expensive. Odd that. :rolleyes:

Only if you visit from some countries outside the eurozone. ;)

I've been to Barcelona a few times recently and still find it relatively cheap for food, clothes, public transport etc compared to France. Friends have been to the centre/west of the country and tell me it's even cheaper (in euro terms). Might go there for a wee holiday in the autumn B)

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Odd how large exposure to Latin America would have been considered a bad thing historically for a bank, but now is good diversification!

Good timing to sell off the property (especially if they didn't lend money to the people who bought the property.)

Does Spain have a similar regulatory regime as the UK? I'd guess that it might be stricter with more central EU oversight?

The Spanish regulator, CNMV did not allow Spanish banks to move asstes off balance sheet, so in some ways they are in better shape than other banks (but in other ways some of them are basket cases). In case you are wondering, the CNMV did this not because of prescience but because they didn't have the resources or the will to establish a regulatory framework for these entities. They are famous for say "no" for 10 years and then succumbing when enough pressure is put on them by their political masters (in turn as a result of pressure form the financial sector). They look good now, put it is largely the result of luck rather than judgement.

Edited by Extradry Martini

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The spanish economy is quite diverse granted and may be potentially in part better off than the UK however they too have 'crisis de ladrillo' and the shock waves have yet to be fully fanned out there. Just got back from Espana last week looking to invest and hmmm, not sure se vende everywhere, building has ceased and economy seems to be in a state of shock, the resorts were way down in numbers too, way down. At least they have some sunshine and don't have to worry too much about heating bills!

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Interesting thought. The Spanish have sold of their land and turned it into assets in foreign companies. Is that what happened? But did the companies buying up O2, BAA, etc. have to raise their cash from debt? We've seen a lot of venture based buyouts over the last couple of years based around borrowing huge sums cheaply, and dumping it onto the balance sheet of the takeover target. Those funds are presumably just as much of a reset problem as RMBS?

Everyone is pointing the finger at Iceland now, with doubts cast on some of their institutions. During the exuberant bubble phase it seems that the UK was happy to take wealthy overseas acquirers at face-value, while sometimes, if it seemed too good to be true, then it probably was too good to be true.

Actually, it was Spanish taxpayers who have funded this buying spree to a large extent. In Spain, corporations can deduct the depreciation of goodwill on foreign purchases against their income taxes. Goodwill is the difference between book value (i.e. the actual market value of assets held by a purchased company) and the purchase price of an acquisition. I don't think that any other major economy offers such a subsidy for corporations to purchase other foreign companies. The fall in corporate taxes is made up by increased taxes on individuals, meanwhile top management and the bankers skim the profits off the top.

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The fall in corporate taxes is made up by increased taxes on individuals, meanwhile top management and the bankers skim the profits off the top.

A bit like every society then, the poor pay whilst the rich get richer.

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Actually, it was Spanish taxpayers who have funded this buying spree to a large extent. In Spain, corporations can deduct the depreciation of goodwill on foreign purchases against their income taxes. Goodwill is the difference between book value (i.e. the actual market value of assets held by a purchased company) and the purchase price of an acquisition. I don't think that any other major economy offers such a subsidy for corporations to purchase other foreign companies. The fall in corporate taxes is made up by increased taxes on individuals, meanwhile top management and the bankers skim the profits off the top.

Indeed - the EU has been rightly getting hot under the collar about this recently... Actually, I think it's not just the depreciation of goodwill, but the goodwill (and other intangible assets) itself....

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Indeed - the EU has been rightly getting hot under the collar about this recently... Actually, I think it's not just the depreciation of goodwill, but the goodwill (and other intangible assets) itself....

It always seems hard for accounting rules to catch up with business practice. Enron was a classic example, if you spin enough plates, you can keep them going for ages. A bit like banks declaring profits as their own debt drops in value.

The balance sheets of rapidly growing companies never seem to get into a steady state position where you can look to see if the changes over time are sensible, and with large depreciations of goodwill, costs of disposals and restructurings, etc. it is hard to see if profit really exists... again like Enron.

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Spain is as corupt as hell and anyone that has ever purchaed property in spain will know that it normal to pay about 30% under the table and not only is the banks in on the deal but also the whole of the legal system.

My guess is once the punters turn away from spain then the spanish goverment will sudenly discover as if by magic all them deals where money past under the table and will be sending out tax bills left, right and center.

Also take note of land grabs where a developer is able to not only take your land but also force you to cover the development costs on the land he's stolen from you.

Mad i know but it's true.

Yes i might grab myself a place in the sun but i'm not going to be paying more than 30k for what is after all a holiday home.

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Having just got back from Spain (Ibiza to be precise), it does look a bit grim for their economy.

On the tourist front, there seemed to be 10-20% less people there this time last year. "Se vende" signs are up on many apartments and I believe there are couple of developments in San Antonio that are not going to be finished anytime soon.

Same here. Came back from Ibiza on Saturday. I also saw loads of "se vende" signs.

I think their HPI problem is way worse than ours. One 3-bed townhouse made of concrete with poor foundations and a part-plastic corrogated roof was up for 250,000 euros. This kind of asking price is just plain daft. There's no way they'll get anywhere near that now.

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It always seems hard for accounting rules to catch up with business practice. Enron was a classic example, if you spin enough plates, you can keep them going for ages. A bit like banks declaring profits as their own debt drops in value.

The balance sheets of rapidly growing companies never seem to get into a steady state position where you can look to see if the changes over time are sensible, and with large depreciations of goodwill, costs of disposals and restructurings, etc. it is hard to see if profit really exists... again like Enron.

I think they are looking at it more from an antitrust perspective than anything else...

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Same here. Came back from Ibiza on Saturday. I also saw loads of "se vende" signs.

I think their HPI problem is way worse than ours. One 3-bed townhouse made of concrete with poor foundations and a part-plastic corrogated roof was up for 250,000 euros. This kind of asking price is just plain daft. There's no way they'll get anywhere near that now.

They are asking daft money for a poorly-built and poorly-performing asset when there is a massive over-supply of them.

The apartment block we were staying at couldn't be any more than 3-4 years old and it desperately needed a lick of paint. Oh, and there were at least 4 armed robberies there last week (and we were apparently one of them although I was in heavy drink sleep I missed the whole thing).

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Spain is as corupt as hell and anyone that has ever purchaed property in spain will know that it normal to pay about 30% under the table and not only is the banks in on the deal but also the whole of the legal system.

Interesting point, and fits some stereotypes!!!

Does anyone find it odd that a country with all these problems has the healthiest major bank in europe? Must be the benefit of doing all that business in Latin America.

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The Spanish economy is in dire trouble but if you went there today on holiday, because of the euro sterling exchange rate, you would find it very expensive. Odd that. :rolleyes:

I did go on hols recently motorbike touring and it was still comparatively cheap 1.25 Euro for a litre of 95 Octane petrol, ironically via Santander

15 Euro for a cheap hotel, (I've never paid less than £40 in the UK even for B&B)

with me slumming it and sleeping under the stars and occassionally tenting it burning 250 miles a day I managed to spend £65 a day. (includes food , accomodation beers , petrol and the rare road tolls)

I can't manage a UK trip like that no way jose!,

That said I did stay in the central plateau of spain where it never rains and you MUST speak Spanish..

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Same here. Came back from Ibiza on Saturday. I also saw loads of "se vende" signs.

That's a great little island, as long as you ignore San Antoni.

I'd quite like to buy a house there, once the smoke has cleared. Five years away?

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  • 395 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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