Spain to guarantee 100 billion euros of bank debt - Spanish Real Estate forum - Spanish property

Colin S · 10-14-2008, 04:15 PM

By Fiona Govan in Madrid
Last Updated: 5:18PM BST 13 Oct 2008

Spain's government will set aside up to 100 billion euros to guarantee bank debt, as part of a package of measures agreed by European leaders.

Spanish Prime Minister Jose Luis Rodriguez Zapatero addresses the media during a news conference at Madrid's Moncloa Palace.

Prime Minister Jose Luis Rodriquez Zapatero said his government had also approved a measure allowing it to recapitalise banks in a "precautionary move" designed to shore up confidence in Spain's financial institutions.

But he said that at this moment in time recapitalisation of Spanish banks was not needed.

"In a preventative, precautionary measure, we are establishing the mechanism for the authorization of the purchase of securities to strengthen the equity of financial institutions," said the socialist leader of the eurozone's fourth biggest economy.

"As of today, this is not necessary. We do not have solvency problems and we have not allotted any amount for this," he said.

The prime minister was speaking after an emergency cabinet meeting called on Monday morning to approve measures agreed in Paris on Sunday.

The government agreed that it would guarantee debt issued to the end of 2009 with maturities up to a maximum five years.

It will be possible to provide guarantees of a maximum amount of up to 100 billion euros," Mr Zapatero told a news conference in Madrid.

"If the financial system reacts as we expect, this won't cost the taxpayer anything," he added.

Homefinder · 10-14-2008, 05:28 PM

Dear Colin
You posted Fiona Govan's complete article with any comments.
Do you actually believe all that?
This is the only part that makes any sense to me.

Quote:

"If the financial system reacts as we expect, this won't cost the taxpayer anything,"

I don't think that us ex-pats, living happily here in the sunshine, are going to be really affected by what happens from now on except those of us who are involved in real estate, as sellers or agents. Even for those there will soon be light at the end of the tunnel.
However, Homefinder's humble advice to the likes of Zapatero, Solbes and even M/s Govan in Madrid is -
The sooner you guys get your heads out of the sand the sooner you will get a solution.

Homefinder

Homefinder · 10-15-2008, 01:31 PM

I wrote the last post late last night and am thinking that I should now qualify that a bit -

There was a lot of talk around the world, even before the credit crisis, about the looming recession in Spain that was considered unavoidable.
This was due to the recent construction boom and a tourist industry that had stagnated for a decade.
The effect of the bursting construction bubble, the resulting increase of unemployment, the high rate of mortgage defaulters and falling real estate values would eventually create a lack of liquididty situation for the banks.

Now other countries, especially the UK and USA are experiencing a similar problem and we have seen that they have dealt with this, in slightly different way, by buying into the banking system and aquiring their assets - good and bad!
The difference with these countries is that they actually need the properties to house the population and, by acquiring the debts, they are avoiding the need to rehouse.
Later, when the respective economies recover, the assets will be sold back to the banks.

This is not the case with Spain as there is a surplus of housing and the state have said that they will only buy the good assets (safe debts) from the banks and leave them with the risky ones.
Buying the good assets will resolve their liquidity problems for a few months and it won't cost the Spanish taxpayer a single cent but, as the recession sets in, more and more of these risky debts will go bad and the banks will be back in the same situation.
It has to be understood that the smaller banks don't finance mortgage loans with their own capital. This is borrowed from other banks and financial institutions short term (weeks and months, rather than years) by bundling up them up in lots.
In other words they are lending long and borrowing short.
Liquidity problems have occured everywhere because the prime lenders have lost confidence in these bundles and, as they fall due, they are not being renewed and nobody wants to lend against them.
State intervention is proving to be a solution and it is hoped that confidence will eventually return. However, by only buying the good stuff and leaving the banks with the rubbish could simply grease the slippery slide into recession because if banks won't or can't lend money then the economy will go into recession.

Sr Solbes (the Finance Minister) was recently put on the spot and asked how it all happened and why nothing was done to prevent it. His answer was that there was nothing that could be done to stop the banks taking advantage of all the cheap EU money to lend to people for houses they could not afford, nor to stop the banks lending to developers, nor to stop the developers building more and more houses that created the bubble.

Homefinder

Colin S · 10-15-2008, 02:13 PM

Firstly, you are assuming that the Spanish banks are as in as much deep dodo's with sub-prime mortgage packages as everyone else which may not be the case and I don't believe it is because Spanish banks have been some of the most cautious in the world.

Remember just a few years ago it was extremely difficult to get a Spanish bank to lend more than 80% and in my own opinion, at the time, that was a very good thing. A few years back that changed somewhat and people were getting 100% mortgages but that was only within the last 3 years which, as far as I'm concerned fits nicely in within the 5 year bubble that was created.

What is the 5 year bubble I hear you ask! Well, that was how long ago it was that prices went through the roof, yes previously they were going up but at around 5 years ago they went mad and because 5 years is such a short period as far as a housing boom and bust goes the only major problem the banks have got is where they have lent within that period to people who now find themselves in negative equity and unable to afford the mortgage payments, because even if they repo the house they won't get their all their money back.

Anything before this time was either mainly bought with an 80% mortgage (max) at prices much lower than today and will probably therefore be o.k. leaving only a very small percentage of property in default or trouble.

The big problem I see is that now the property bust has come and it was always going to, what will the government do about it as this will affect employment in a big big way, well, here is the answer, they make sure the banks are not affected by the current problem with banks not lending to banks and keep them lending within Spain and to each other, which I believe is what is planned as per the above.

This will improve confidence in the system and hopefully drive the banks in to continuing to lend to individuals for mortgage purposes up to a max 70% which will in turn help the housing market and in turn will improve the employment problem.

If the Spanish government handle this correctly then Spain could be one of the least affected countries in the world due mainly to the cautionary way that Spanish banks have acted in this country.

This recession was coming regardless of what else happened in the world and it is still about now that I predicted when I first moved here and while this IS going to be a BIG recession it will be a very different kind of recession to other countries.

THE only major problem that I can see is that where Spanish banks have bought into other banks in other countries and they are forced to bail them out using Spanish money which is a very real threat. If I were a Spanish bank I think I would rather consider closing my foreign investments down than try to bail them out.

Anyway, as far as I'm concerened, so far so good to the Spanish government.

Although having said all that I sometimes have a complete change of heart and believe we're all going to die of hunger and thirst due to lack of employment

Homefinder · 10-15-2008, 03:00 PM

Quote:

THE only major problem that I can see is that where Spanish banks have bought into other banks in other countries and they are forced to bail them out using Spanish money which is a very real threat. If I were a Spanish bank I think I would rather consider closing my foreign investments down than try to bail them out.

I guess that ColinS is talking about Santander because I have not seen any other Spanish bank buying anything recently.
What makes you think that Santander is is a Spanish bank, apart from the fact that it is registered in Spain? Santander is the 3rd largest bank in the world and most of its spread is outside of Spain. They recently sold Banco de Venezuela to Hugo Chavaz - remember?
About a year ago Santander had the sense to bail out of the credit "vicious circle" and they are now buying up banking assets like it is going out of fashion.
Santander got B & B, the UK government got the debts!

I think it is significant that Santander is NOT buying Spanish banks nor involved in any way with the bailout.
I agree that Spanish banks have had stricter controls since the last banking fiasco and would probably remain healthy if the problem was not the looming recession.
Rememember: Banks get most of their funding by borrowing short. Recently the CEB has provided funds to ease the crunch. It was announced last week that that the CEB would remove this funding and all European banks would be left with a problem when these loans fell due, over the next year or so. That's waht they are talking about now.
The big mistake is that the state is not buying the toxic debt.
Zapatero says that Spanish banks don't have a solvency problem but he was speaking in the present tense! Of course that is true right now but the CEB want their money back. The banks will have to find that somewhere else but nobody is going to lend it to them.
I also know that the Spanish banking problem is the worst kept secret outside of Spain and the whole world has been talking about it for months.
All you have to do is search Google with "spanish banking crisis", drill down through all the recent stuff about Santander buying everything under the sun and you will start to see it.

There are 3 big banks in Spain, Popular, BBV and Santander, and they will survive. There are 100's of smaller ones and cajas. Most of these will merge or be taken over by the big ones.

I think that the banks have had it too good for too long. The German Finance Minister said that banks don't trust each other any more. If banks don't trust bank's then what are the banks customes supposed to think - it is going to take them a long, long time to restore trust and confidence.

Homefinder · 10-24-2008, 09:59 PM

Hi Colin

I agree with what you say about the Spanish banking system being cautious but I think that it is more of a case of stricter regulation that in other countries. You said -

Quote:

Firstly, you are assuming that the Spanish banks are as in as much deep dodo's with sub-prime mortgage packages as everyone else which may not be the case and I don't believe it is because Spanish banks have been some of the most cautious in the world.

Since you made that statement things have changed quite a bit and there is a lot of comment now about a Spanish banking crisis following the burst of the property bubble.

Quote:

Spain fund won't avoid bank consolidation-analysts
Wed Oct 8, 2008 8:34am EDT
By Judy MacInnes
MADRID, Oct 8 (Reuters) - Spain's 30 billion euro ($40.9 billion) aid package will ease banks' cash problems but will not end the liquidity drought or save them from consolidation, senior financial sources and analysts said on Wednesday.
Mid-sized banks and the country's 46 savings banks, which are highly exposed to the sharp downturn in the domestic property sector, are seen as particularly vulnerable, they said, despite the package of measures announced on Tuesday.

See the full Article . . . .

The writer is saying that mergers and takeovers are certain for most of Spain's small banks within the next few months.
Now that the State have come up with the 100,000 Euro guarantee that won't be a problem for most people - unless they work for a bank.

Homefinder