Posted by: Phoenix Capital... Post date: 05/31/2012
This is the state of
‘The following is an excerpt from my (Summer’s) most recent client letter.
case you missed it,
of course referring to the Bankia nationalization, the largest bank nationalization in
Bankia was formed in 2010 when the Spanish Government merged seven insolvent cajas So it’s no surprise that Bankia was a trainwreck waiting to happen… at least to anyone with a working brain.
However, both the bank and the Spanish Government decided to maintain the charade that the bank was in great form right up until it collapsed (only one month ago Bankia was talking about paying its dividend).
On May 9th the Spanish Government stepped in to nationalize the bank. Its first step was to convert its (the Spanish Government’s) €4.5 billion worth of preferred shares to common shares, thereby taking a 45% stake in the bank.
Then Bankia announces €17 billion of new write-downs as well as €7 billion of mark-downs on investments, thereby rendering the bank insolvent. It also revised its 2011 results from a €309 million profit to a €3 billion LOSS.
end result… Bankia just received a €19 billion Euro
bailout, the largest in
…so where is the €23.5bn for the Bankia rescue going to come from? The state's Fund for Orderly Bank Restructuring (FROB) is down to €5.3bn, and there are many other candidates for that soup kitchen.
for European Policy Studies in
As I wrote in my column this morning, the Spanish economy is spiralling into debt-deflation. Monetary and fiscal policy are both excruciatingly tight for a country in this condition. The plan to slash the budget deficit from 8.9pc to 5.3pc this year in the middle of an accelerating contraction borders on lunacy.
You cannot do this to a society where unemployment is already running at 24.4pc. Either Europe puts a stop to this very quickly by mobilising the ECB to take all risk of a Spanish (or Italian) sovereign default off the table – and this requires fiscal union to back it up – or it must expect Spanish patriots to take matters into their own hands and start to restore national self-control outside EMU.
addition to this,
Spain's wealthiest autonomous region, Catalonia, needs financing help from the central government because it is running out of options for refinancing debt this year, Catalan President Artur Mas said today.
"We don't care how they do it, but we need to make payments at the end of the month. Your economy can't recover if you can't pay your bills," Mas told a group of reporters from foreign media.
A spokesman for the Catalan government later emphasised that Mas was referring to payments that must be met routinely each month and not a specific deadline this month.
The debt burden of Spain's 17 highly devolved regions, and rising bad loans at the country's banks, are both at the heart of the euro zone debt crisis because investors are concerned they could strain finances so much that Spain, the currency bloc's fourth biggest economy, will need an international bailout.
Catalonia, which represents one fifth of the Spanish economy, has more than 13 billion euros in debt to refinance this year, as well as its deficit.
All of the regions together have 36 billion euros ($45 billion) to refinance this year, as well as an authorised deficit of 15 billion euros.
Last year many of the regions financed debt by falling months or even years behind in payments to providers such as street cleaners and hospital equipment suppliers.
Oh, and the Spanish banking system needs to write off another €270 billion… if Spain cannot cobble together €19 billion, where on earth will it get the money needed to support its collapsing banking system which is on the verge of having to write down hundreds of billions of Euros?
is the state of affairs in
What could go wrong?
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Whether it’s a