Spanish Bank Crisis

**Homefinder** · 06-25-2009 05:09 AM

Spanish Banks Dowgraded by Moody's Investor Service

15th June: Moody's Investors Service downgraded the ratings of 30 Spanish banks and financial instutions due to the severe recession and the consequent loan defaults.
Only the two larges banks Santander and BBVA retained their previous rating but were both put on the "watch list"
The full article: Spanish bank ratings downgraded.

Now that was last week. This week the ECB finally got around to doing something -

ECB pumps €442bn into banking system
The European Central Bank on Wednesday pumped hundreds of billions of euros in one-year loans into the eurozone’s weakened banking system, making record amounts of emergency finance available in a bid to unlock credit markets and revive the region’s economies.

The full article from FT.com

They have been talking about this European version of "quantative easing" for several weeks already and the rumour was that it was going to be €150bn. In the end it was almost 1/2 trillion.
What a shame! Far too little, far, far too late!
It looks good enough. The money is available for 1 year at 1%. The only problem is, as far as most Spanish banks are concerned, that they have to pay it back next year.

Meanwhile, also this week, from the Financial Times again -

Spain's Socialist government plans to reshape the country's financial sector with the help of a €9bn rescue fund, aimed at troubled savings banks and set to be launched this month, Elena Salgado, finance minister, said yesterday.
The fund - which could borrow to leverage itself tenfold and so deploy up to €90bn to finance recapitalisations and mergers - would enable the Bank of Spain to take control of banks that run into difficulties following the collapse of the Spanish housing market.

The full article: €9bn fund to bail out Spanish banks

It is quite possible that even €90bn won't be enough now now because it has been left too late. Until the banking system in Spain recovers and starts lending to business the economy could continue in a downward spiral. Unemployment will increase, more borrowers will default and the state will get further into debt simply because it is paying out more than it collects in taxes.
The real question is what happens in the end.

Before the Euro, long before a country got into this kind of situation, the solution was to devalue but now that is not possible.
Spain and other countries leaving the Euro has been discussed in financial circles but rejected because it could do more harm than good in the long term.
As we have already seen, virtually negative interest rates coupled with quantitive easing of mega proportions for the £ and the $ have seriously eroded the value of those currencies but now, after just a few months, there seems to be hope of recovery.
Spain's most important industries are tourism and "tourist" construction so perhaps they should consider pulling out and allow the New Peseta to devalue naturally - before the Euro falls apart completely.
I know this all sound too incredible to contemplate but there has not been a financial crisis like this one since the 1930's.

Homefinder

**Homefinder** · 06-29-2009 12:54 PM

Further thoughts about how this has affected property prices in Costa Blanca north.
Until now it has definitely been a buyer's market but that is changing now because 3 things are starting to happen -
1. Lots of would be buyers are now renting long-term, either because they cannot get a mortgage or because they are not confident that the market has bottomed out.
They tend to make very low offers and a fair number of properties have been sold. This has reduced the stock of reasonably priced properties because most of the sellers who where prepared to reduce have already done so and the properties have sold.
2. Many sellers have removed their properties from sale in order to rent long-term.
3. Most of the sellers in the area are Brits who intend to repatriate the funds. Around the end of the year the value of £sterling was very low, almost 1:1, consequently they were prepared to accept a lower Euro amount.
That is now changing and my view is that the £ will be back to 1.25 before the end of the year.
Consider that with the fact that Spanish banks are not foreclosing on defaulters. These are around 8% and expected to go to 14% to 15% quite quickly. Instead of foreclosing the banks are acquiring the properties because, if they foreclosed, the properties would have to go to auction, which would drive prices even lower and increase the bank' losses.
So the banks are still solvent but have liquidity problems (all their cash is tied up in these properties).
Last week there were 2 important events: The ECB came up with €450bn to help European banks and the Bank of Spain established a fund of €90bn just for the Spanish banks.
As far as Spain is concerned the principle objective is to rescue the two industries that account for 30% of the GDP: Construction and Tourism.
This provision of capital will mean that the State acquires a controlling interest in most of the smaller banks and it may well work by freeing up capital for mortgages, which is currently non-existent.
The whole objective of this massive capital injection is free the locked up banking system and get the economy moving.
It may well mean that far more than €90bn is required but quite possibly we shall see some successful mortgage applications within the next few months, which could be very good news.
Homefinder

vikas11 · 09-19-2009 12:56 PM

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vikas11 · 09-19-2009 01:02 PM

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**Homefinder** · 09-19-2009 01:10 PM

Vikas11 - I am afraid that this looks like blantant self-promotion. Additionally the content of your post has nothing to do with the topic of the thread.
Please delete it immediately.
I notice that you have posted the same text exsewhere. I would suggest that you delete these as well.

Homefinder
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