Well things are looking mighty dodgey for Spain’s banks just now.
Spain’s Central Bank has just told them they must now hold extra loss reserves against property the banks ‘aquired’ from defaulted loans. The CB has told them they have to write down the value and hold reseve capital to the tune of 10% on anything they now aquired in foreclosure, 20% on any property held for more than a year and 30% for anything held for more than 2 years.
Now I think the Caja’s have been holding a LOT for two years. More, I suspect than even the CB is aware of. The question is whether even the Spanish Inquisition could force them to come clean. If they do I think it will take more than a few fervent payers to sort it out.
Meanwhilethe big boys, BBVA and Santander have their own problems. They are having a hard time accessing funding. BBVA especially could get caught short. I think the reason they are getting squeezed is that theyare bleeding now in two places. Non performing loans in Spain that might no longer be able to be hidden and horrid exposureto looming Commercial Real Estate losses in its US subsidiaries. BBVA bought a series of Southern State bank a while ago. They were all regionals and all absoutely STUFFED with Commercial loans (CRE). All its US subsidiaries are in trouble. BBVA owns Compass bank of Alabama. Compass has Commercial Real Estate and Construction loans that are worth 313% of its total risk-based capital. Three time its capital sunk in loans that are, by everybody’s view are headed for an almighty conflagration towards the end of this year.
I think the markets are wondering where BBVA is getting its cash flow never mind where it might go for nit later this year. The ECB seems to me their last and only port of call. Which is very unhealthy.
No wonder there are rumourts of the Chinese saying they might be ‘considering’ their holdings of Euro debt. Greece trying to ‘re-negotiate the terms of the austerity measures in its bail out plan, its debt still unsaleable, and now Spainsih banks looking like they are going to puke up a river of unpleasantness.
Somebody wiull startto short them in earnest soon.
Euro’s back on the menu boys!