‘Spain continues to heap one impossible idea on
top of another.
The latest “plan” consists of Spain creating a
bad bank called SAREB that will buy up bad assets in Spain in an effort to
clean up the country’s finances.
SAREB was part of the €100 billion Spanish
bailout plan which was set forth in June. Once again, none of it makes any
sense.
Spain’s Bad Bank to Buy Up Assets
SAREB, which is set to begin operations on Dec.
1, will absorb soured investments that have dragged down the balance sheets of
Spanish banks since the collapse of the country’s housing market four years
ago.
Fernando Restoy, head of Spain’s bank-bailout
fund, said SAREB will likely purchase about €60 billion of toxic assets
using Spanish resources and some of the funds allocated under the
bank-bailout agreement.
It will apply an average 63% discount on land
and housing units and an average 46% discount on real estate loans, he said,
and will aim to sell the assets to investors over the next 15 years, with
a return on investment of at least 14% for any investors in the bad bank.
http://online.wsj.com/article/SB10001424052970204789304578087030239493360.html?mod=googlenews_wsj
Wait a second… isn’t Spain bankrupt?
After all, their regional bailout fund has used
up all of its funds, the country has only received €30 billion of the original
€100 billion bailout, and Spanish banks are now beyond broke, selling even
Spanish sovereign bonds to free up cash to face a systemic bank run (18% of
deposits have fled Spain this year alone).
So where exactly is the €60 billion going to
come from? Even if Spain uses all of the €30 billion it’s received in bailout
funds so far, it’s still €30 billion short.
Even if Spain were to get the funds
together to do this… this move is still not big enough. Spanish Prime Minister
Rajoy admitted in private that Spain’s real funding needs are in the
ballpark of €500 billion. And that’s assuming he knows the true state of
Spain’s finances (unlikely given that he’s a career politician with no
financial background).
Folks, we’ve been through this whole mess
before with Bankia.
For those who have forgotten, Bankia was
planning on issuing a dividend just one month before it was nationalized. Then,
within the span of a few weeks, it:
1) Requested a bailout for €4.5
billion which eventually rose to €19 billion.
2) Revised its 2011 profits to a
€3.3 billion loss.
3) Had to be nationalized.
This is what all of us should keep in mind as a
true representation of Spain’s financial system: a completely artificial
appearance that comes crashing down in a matter of days.
A few final thoughts on Spain:
1) In June, Spanish banks were
drawing €300 billion or so from the ECB, today that number is north of €400
billion. If things were improving it should be shrinking.
2) As mentioned earlier, Spanish
banks which were essentially the only buyers of Spanish sovereign bonds are now
selling them to meet funding needs due to the country’s bank run. So
who is going to buy Spanish sovereign bonds? The ECB? How and when?
3) Spain’s unemployment just topped
25% (again the wrong direction for things to be moving).
At the end of the day, you can announce all the
fancy sounding programs you like. But unless someone comes up with actual cash
none of it announces to much other than political posturing.
With that in mind, Spain remains the primary
issue for Europe. I cannot say when this house of cards will come crashing
down, but crash it will. It’s only a matter of time.
Indeed, between Spain’s woes, a hard landing in
China, the EU, China and US in recession, and the like, I cannot actually
remember a single time in which the global economy and financial system have
faced this many difficulties. And that includes the build up to the 2008 Crash.
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