June 21, 2012 at 8:38 pm #8491
Raúl Ilargi MeijerKeymaster
Léuké Recipes for Survival Spanish cookbook The results of the "independent" Spanish bank stress test by Oliver Wyman L
[See the full post at: Spanish Cook Books]June 22, 2012 at 2:18 am #4215
We know that Spain cooks its books. And we accept that because everyone else does the same thing. That will have to stop. The question is: how do we achieve that? Will we all have to brandish torches in a square near us? And if so, are we prepared to do that?
Torches first, Pitchforks second, Guillotines finish the job.June 22, 2012 at 5:11 am #4217
Spain is short the new gold- WATER. Who is going to invest in RE when there is a water shortage?
Financial analysis should be pricing in water supply or lack of it.June 22, 2012 at 5:06 pm #4225
“…In Ireland, it eventually added up to 24% or so. Let’s be mild and put it at 15%. That puts the -unrecognized – losses at €450 billion. And counting, no doubt. And that’s still just one part of the problem.”
Your estimate of 450B euro losses assumes the 15% of bad loans are total writeoffs. In Ireland, the haircuts applied to loans transferred to NAMA ranged from 40-60%. So you need to cut your estimate in half to 225B, and you’re closer to the range of the other analyst’s estimates.
Likewise, the amount of mortgage debt is only a fraction of the total asset number. Spanish total mortgage debt was 76% of GDP (1T) back in 2009. So let’s say it is 760B euros. Apply the Irish failure rate to that: 24%, and the haircut to that (50%) and things aren’t so horrible: 91B.
Of course there’s developer debt, which no doubt will be much closer to a total writeoff. And perhaps the cajas (56% of mortage loans) loan book is significantly worse than in Ireland – I read that most of their debt qualified as “subprime.” And then of course there’s the sovereign debt, as you point out.
But in reading more sources, I’m not sure it comes to 450B euros. The mortgage market itself is only 750B. And in Spain you cannot just walk away. There are entire websites devoted to informing people from England they can’t just walk away from their Spanish vacation home loans…that should help the recovery rate a bit…some fun bullet points include:
* If you have traceable UK assets they can seize it with a freezing order.
* They WILL go after your UK home.
* They WILL try to freeze your bank accounts.
* They WILL try to get an injunction to take money out of your wages.
* They can take your car or any other assets worth €5000 or more.
Not affiliated, not a recommendation, just provided for reference.June 22, 2012 at 11:22 pm #4228
“Torches first, Pitchforks second, Guillotines finish the job.”
The trouble is no one knows how to make a tumbril anymore.
gJune 23, 2012 at 12:25 am #4229
You cannot turn on the TV or the radio without hearing about
“THE EU DEBT PROBLEM”
The implication being that the borrowers are in trouble.
The borrowers are not in trouble they cannot pay back the loans and the collateral for those loans are non existent.
The truth is that the lenders are in trouble for making loans that they should have refused to do if they had done their due diligence.
The real headlines should be
“THE EU BANK LENDING PROBLEM”
Lenders need the bailout NOT the borrowers.June 23, 2012 at 5:35 am #4230
davefairtex wrote: Your estimate of 450B euro losses assumes the 15% of bad loans are total writeoffs. In Ireland, the haircuts applied to loans transferred to NAMA ranged from 40-60%. So you need to cut your estimate in half to 225B, and you’re closer to the range of the other analyst’s estimates.
I’m guessing you are correct. Thanks again for answering a derivatives related question I had a while back. Let’s see, we got the IMF at 40B and Ilargi at 500B…somewhere in the middle is “comfortable” for me.June 23, 2012 at 8:35 am #4232
I gather the Wyman analysis made no estimate of what would happen if Spanish government bonds were restructured or even marked to market.June 23, 2012 at 7:31 pm #4237
No I don’t think any bank stress tests have factored in defaults of their own sovereign. Its pretty clear a spanish sovereign default would cause another “event” for the spanish banking system.
As of January 2012, Spanish banks held 22% of Spanish sovereign debt. I don’t have any numbers on what they are today. The numbers suggest that the mortgage loan problem has the more serious long term impact on spanish bank balance sheets, but a sovereign default will happen all at once, and it is impossible to pretend that it didn’t happen, or that the values can be lied about – quite unlike millions of nonperforming home loans.
We shouldn’t forget about the impact of either spanish bank defaults or a spanish sovereign default on various default insurance policies written by US banks. A few more credit downgrades on US banks and we’ll find out soon enough who has been swimming naked from all that new collateral that will have to be posted. MS estimated they’d have to post an additional 7B in collateral from the downgrade they received on Friday.
Posting additional collateral was our first inkling things weren’t well at AIG back in 2008.
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