The following translations are quite choppy, but the gist should be easy to understand. No one believes the Bank of Spain regarding potential writeoffs on banks it has taken over, especially CAM.

CAM has 40% Delinquency Rate, Risk of 17.5 Billion Euros

Exposure to CAM brick is around 17,500 million with a 40% default

The Caja del Mediterráneo (CAM), taken over and operated by the Bank of Spain, has a risk to construction and property development of around 17.5 billion euros, with a delinquency rate greater than 40%.

Big Banks Not Willing to Bid on CAM

The bank of Spain wants to auction off CAM. No one wants it.

Banks ask to exclude bad assets for a bid on the CAM

The big banks are not willing to risk a penny by the CAM. First, because they do not trust the real hole in the accounting. And second, because the economic and current market circumstances advise extreme caution.

Some institutions have already taken this message to the Bank of Spain, and have asked for the creation of a bad bank, with assets of more than 17 billion (apartments, home loans and equity to developers). This entity would take toxic assets of the intervened Caja that would then be excluded from the auction and, therefore, would remain under the umbrella of the Bank Restructuring Fund (Frob).

Industry sources say that this model has already been used in the case of Caja Castilla La Mancha , whose industrial portfolio, the main problem of La Mancha, was excluded from the package that eventually was awarded Cajastur, and is now owned by the Deposit Guarantee Fund (FGD) . The same sources acknowledge, however, that previously the legislation and the situation were different .

The Bank of Spain is reluctant to grant this request, but considers all the possibilities of fear of an unsuccessful bid, which would be a resounding failure in the process of restructuring of the sector. The regulator considers that articulating a bad bank could set a precedent and private investors would have opened the door for these conditions apply to entities where the FROB enters this September-CatalunyaCaixa, Unnim NovaCaixaGalicia – when acquiring the remaining participation in them.

Bank of Spain Changes Conditions on Auction to Sell CAM

Bank of Spain Changes Conditions on Auction to Sell CAM

The plight of the markets and the financial sector has caused a radical change in the method of the Bank of Spain to sell the CAM.

As noted in El Confidential September 12, the Bank of Spain has offered to potential buyers an EPA that covers 90% of all losses surfacing in the most deteriorated assets of the CAM -primarily promoter credit and troubled realty- over the next 10 years, except for the first 2.5 billion, where coverage is 80%.

The lack of liquidity has become so acute that the entities are looking for any formula to take it out from under the stones: deposits at 4% (Popular, Pastor) or even 5% (CatalunyaCaixa, if only for part of the money), and the latest shout, high-yield promissory notes that allow banks to avoid Government penalization of the super deposits (Sabadell, Santander).In this frame of mind, to take the monstrous maturities of CAM can be suicidal for almost anyone.

But it’s not just that.The buyer of CAM, including Santander and BBVA would have to raise capital to absorb the 70 billion of its stock, despite having EPA. And in this capital expansion, the market punishment would be terrible: they would have to place at a price so low that the cost of capital would be tremendous, impossible to renabilize with the levels of ROE (return on capital) expected in a foreseeable future.The deadline for receiving expressions of interest closes on September 26, while not indicating offers are firm. If there are no interested investors, the Bank of Spain will have to consider the hash and the piecemeal sale of the CAM.

For ease in understanding I flipped the order of those articles. Note that even with guarantees, and a change in conditions, no one wants to bid on CAM. Here is one more concern.

Three Savings Banks Hid Losses of 2.5 Billion Euros

Three Savings Banks in Spain Hid Losses of 2.5 Billion Euros

three cases yielded higher losses to 2,500 million euros, resulting from a dramatic increase in arrears (in some cases nearly quadrupled compared to the official announcement before he entered the Bank of Spain).

The problem is that these entities had passed without difficulty supposedly strict regulatory controls. Although the Government insists that there are no surprises and that the financial system is recapitalized and in recovery, with this background it is not surprising that there are still many who do not rely finish.

Mike “Mish” Shedlock
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