Tuesday, 29 June 2010 11:04

The Hypocrisy that is Known as the Spanish Banking System

CNBC runs as a headline the usual contradictory nonsense that we come to expect from certain heads of state. It would be funny if it didn't portend such dire consequences. The Spanish banks, just last week, were declared to be some of the healthiest in Europe (spoken with my fingers crossed behind my back, wry smile and spittle dripping from the side of my mouth). Of course, Banco Santadar and BBVA shares rocketed on the news that they are no longer insolvent and that the Spanish housing market pauses no threat.

CNBC Trader Talk Blog — Pisani: Spain Bank Aces Stress Test — CNBC ...

Europe mostly flat (Greece up 2.3 percent), euro behaving, U.S. futures were calm ahead of the quadruple witching expiration. Spanish bank Banco Santander is up 1 percent on several pieces of news:

1) a spokesman for Spain's Prime Minister remarked that the Spanish bank performed strongly during the recent stress tests, saying the bank had "one of the best" results. The Committee of European Banking Supervisors is expected to provide details of the results in the coming weeks.they have the best ranking so far in a European bank stress tests, according to a Spanish government source; not clear when the full results of those tests will be published.

2) the bank also confirmed they have made an offer for 318 British branches of Royal Bank of Scotland.

They already have a strong presence in the UK. Santander's vice-chairman caused a small stir yesterday when he said they were talking with M&T Bank, based in Buffalo, NY, about possibly merging its U.S. operations with them.

But all of a sudden the banks in Spain get pissed off when the ECB declares it no longer wants to play the Pan-European subprime lender role: Spanish Banks Rage at End of ECB Offer

Spanish banks have been lobbying the European Central Bank to act to ease the systemic fallout from the expiry of a 442 billion euros ($542 billion) funding program this week, accusing the central bank of “absurd” behavior in not renewing the scheme. On Thursday, the clock runs out on the ECB financing program – the largest amount ever lent in a single liquidity operation by the central bank – under the terms of the one-year special liquidity facility launched last summer. One senior bank executive said: “Any central bank has to have the obligation to supply liquidity. But this is not the policy of the ECB. We are fighting them every day on this. It’s absurd.”

Another top director said: “The ECB’s policy is that they don’t want to provide maturity of more than three months. But they have to adapt.” Banks across the euro zone, but in Spain in particular, have found it hard in recent weeks to secure liquid funding in the commercial markets, with inter-bank funding virtually non-existent. The 442 billion euro ECB facility, which charges interest at a rate of 1 percent, is not set to be renewed, something that banks in Spain and elsewhere in Europe say ignores current commercial realities. A special offer of six-day liquidity will tide banks over until the following week’s regular offer of seven-day funds. On Wednesday, the ECB will also be offering unlimited three month liquidity, and further offers of three-month liquidity will keep banks going until at least the end of the year. “The system is just not working,” agrees Simon Samuels, banks analyst at Barclays Capital in London. “We’re approaching the third year of liquidity support and still the market cannot survive unaided.”

BarCap estimates that at least 150 billion euros of the ECB funding that is maturing will not be rolled over into shorter-term three-month schemes, forcing banks to shrink their own lending. Spain’s banks have been among the hardest hit by the faltering confidence in the euro zone economies in recent months following problems with the country’s smaller savings banks, or cajas. The bigger commercial banks, led by Santander and BBVA, feel unfairly tarred.

Yeah, right. "Unfairly Tarred"!!! I've been warning about the Spanish Banks since January or 2009. Now that the chickens have come home to roost, they are screaming "unfairly tarred"??? How about (chicken roosting) feathered and tarred!

As We Have Warned, the Fissures Are Widening in the Spanish Banking System Monday, May 24th, 2010

I have made our position on Spain clear through a complete forensic review of the state’s finances for subscribers: Spain public finances projections_033010. An excerpt from this subscription document (subscribers, reference page 2) shows the euphoric, yet highly unrealistic optimism upon which Spain has built its fiscal austerity projections.

spain finances excerpt

As suggested in the document, if one refers to the blog post Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!, you will find that not only has Spain apparently fabricated a fairy tale of potential prosperity based upon the projections of the IMF and EC, but the IMF and EC have been nothing but fairy tale projections themselves.

I have been bearish on the Spanish banking system since January of 2009 (reference Reggie Middleton on the New Global Macro – the Forensic Analysis of a Spanish Bank ), and after a trip to the Costa del Sol by way of Málaga during the boom times are shortly thereafter, the reasons should be most obvious.

We now have a rash of new Spanish bank and sovereign research which has returned between 300% and 400% over the last few months.

std opt. research time purchase

Needless to say, as the situation in the EU deteriorates upon the widespread dissemination of the knowledge that BoomBustBloggers have been trading off of for quarters now, I feel the options will spike in value significantly!

I invite those who don’t subscribe to BoomBustBlog to please be sure to peruse our entire collection of free analysis on the Pan-European Sovereign Debt Crisis.

Subscribers should review the ample Spanish research we have amassed on the crisis, its origins and opportunities avaiable:

Please be sure to peruse our entire collection of free analysis on the Pan-European Sovereign Debt Crisis.


The EU Denies Planning Spain Credit Line with IMF, US, although rumors and leaks are propping in more places that a Swiss damn being plugged with a bunch of slender, fair fingers of those many blond maidens – after all, Greece did not want and was not looking for aid either. That trillion dollar bailout fund was the result of a bunch of politicians with too much money on their hands having absolutely nothing else to do with their time.

Cliff Wachtel gathers much of the evidence:

After 2 German newspapers reported that Spain was seeking aid, now add a Spanish newspaper, El Economista, as the third to report a coming aid package for Spain, after 2 German papers reported this last week. All reports have been denied by the Spanish Government, which is rapidly losing credibility as the reports build. See details here from Bloomberg.

Yesterday, the German newspaper Frankfurter Allgemeine, citing an unnamed source in Berlin, reported that Spain was discussing a bailout with EU officials following last week’s freeze in interbank lending as markets have lost confidence in the Spanish banking sector. Spain denied the report, did Greece had done the same thing earlier, so EU credibility isn’t what it once was. If the allegations prove true, look for A LOT more downside in risk markets. This was the second such report, the first was last week from from FT Deutschland

Remember that just last week Spain had a 3 year bond sale at an average yield of 3.32%, roughly double the yield needed to sell 3 year bonds as recently as April, an ominous sign given that Spain needs to sell about € 25 bln in bonds in July. It is unclear how long Spain can continue to withstand a doubling of its borrowing costs, which will counteract efforts to cut its deficit.

Cliff provides significantly more anecdotal evidence of an impending Spanish bailout in the link above. I harped on the increase in expenses yesterday:

And for those of you who favor a little tabloid style drama in our lives, I bring you the European Octopus known as Banco Santadar, the cousin of the America Squid...

Throw a Little Conspiracy Theory into the Pan-European Sovereign Debt Crisis and an Impending Spanish Bank Collapse and Who Needs TV For Entertainment?

For good measure, a quick review of nasty haircuts...

Introducing the Not So Stylish Portuguese Haircut Analysis Wednesday, June 2nd, 2010

For those who feel that the simple application of arithmetic and math amounts to “Doomsday Scenarios”, Fear-mongering, and vultures in the market place, I present to you BoomBustBlog’s scenario analysis of the Portuguese Haircut.

You may manage your subscription options from your profile.

You think those are ugly? You ain’t seen nothing yet!

The Mathematical Truth Concerning Portugal’s Debt Situation

Before I start, any individual or entity that disagrees with the information below is quite welcome to dispute it. I simply ask that you com with facts and analysis and have them grounded in reality so I cannot right another “Lies, Damn Lies, and Sovereign Truths: Why the Euro is Destined to Collapse!“. In other words, come with the truth, or at lease your closest simulacrum of it.


Last modified on Wednesday, 30 June 2010 12:21