‘In a previous article I began delving into the toxic sewer that is the Spanish banking system. At the root of the problem is the previously unregulated Spanish cajas or regional/ local banks which own as much as 56% of all Spanish mortgages.
To give you an idea of how bad things are with the cajas, consider that in February 2011 the Spanish Government implemented legislation demanding all Spanish banks have equity equal to 8% of their “risk-weighted assets.” Those banks that failed to meet this requirement had to either merge with larger banks or face partial nationalization.
deadline for meeting this capital request was September 2011. Between February 2011 and September
2011, the number of cajas has in
Put another way, over 60% of cajas could not meet the capital requirements of having equity equal to just 8% of their risk-weighted assets. As a result, 28 toxic caja balance sheets have been merged with other (likely equally troubled) banks or have been shifted onto the public’s balance sheet via partial nationalization.
are well aware that this policy has only spread the toxic garbage, not fixed it. Case in point,
take a look at the chart for Banco
Banco Popular, which acquired failing caja Banco Pastor, has experienced a similar fate, falling to a new low soon after the merger:
My point with all of this is that merging one garbage bank with another larger slightly less garbage bank doesn’t solve anything. The market knows this, which is why we see these banks continuing to collapse despite being merged.
Having addressed all of this, I firmly believe that no one, not even the Spanish Government has a clue how much toxic garbage debt exists in the Spanish banking system.
Moreover, it’s not as though the Spanish Government is heavily incentivized to come clean about the true nature of the Spanish banking system even if it did know the facts.
Case in point, the Government just admitted that Spanish banks will need another €29 billion in loan loss provisions yesterday, before revealing that “problem loans” for the Spanish banking system are now at an 18-year high of 8.15% (€140 billion of the total €1.7 trillion in loans within the Spanish Banking System).
Put another way, by the Spanish Government’s own admission (read extremely conservative estimate) nearly one out of every €10 leant out by Spanish banks is probably not going to be paid back.
are only going to get worse. Spanish citizens (at least those that have money)
have been pulling their money out of
This flight of capital will result in higher leverage levels for Spanish banks (already leveraged at 20 to 1) and smaller capital buffers with which to address future losses.
way, capital is leaving
Simply put, Spain’s banking system is an absolute sewer of toxic debts that no one, likely not even the Spanish Government or Spanish Central Bank, truly has a grip on.
The few facts that we do know are:
Total Spanish banking loans are equal to 170% of Spanish GDP.
Troubled loans at Spanish Banks just hit an 18-year high.
Spanish Banks are drawing a record €316.3 billion from the ECB (up from €169.2 billion in February).
The share prices of Spanish banks that were merged with cajas have broken to new lows.
None of this is good news at all. Especially when you also consider that…
Spanish banks need to roll over 20% of their debt this year.
correct, one fifth of all Spanish bank bonds need to be paid off or
renegotiated in 2012. And this is happening at a time in which Spanish interest
rates are rising. Indeed, the Spanish ten year is approaching the dreaded 7%:
the level at which
With that in mind, I’m already positioning subscribers of Private Wealth Advisory for the upcoming EU collapse. Already we’ve seen gains of 6%, 9%, 10%, even 12% in less than two weeks by placing well-targeted shorts on a number of European financials.
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the level of my analysis as well as my track record, my work has been featured
in Fox Business, CNN Money, Crain’s
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Regards, Graham Summers,Chief