The implosion in Spanish banks continues. On Wednesday, Spain nationalized BFA, the 8th nationalization since the start of the crisis.
After sinking 3 billion into CatalunyaCaixa, Spain tried to privatize the mess but there were no offers at zero euros. Clearly CatalunyaCaixa bank is worth less than zero.
Meanwhile Der Spiegel reports “Bundesbank has no idea of what is happening in Spanish banks”. Mish readers do. The Spanish banking system is without a doubt bankrupt.
Let’s take a look at half a dozen articles courtesy of Google Translate.
Spain Nationalizes BFA
It’s official: Spain nationalizes BFA and control 45% of Bankia
The Economy Ministry has revealed that 100% nationalize Bank Savings Financial, which control 45% of Bankia, while it has announced in a statement that the state will provide the capital “strictly necessary” to clean up group.
The Government is convinced that Bankia, with 10 million customers and over 400,000 shareholders, leverage its potential to continue playing a major role in the Spanish banking sector.
Apart from the operation of nationalization, it is expected that the Spanish government to inject the entity between 7,000 and 10,000 million euros through the FROB, an agency of the Bank of Spain.
Spain “Invests” 33 Billion Euros in Bankia
Please consider Bankia State support now amounts to 33,000 million euros
The Bankia State support now amounts to 33,000 million euros since the beginning of the financial crisis in 2008. Most of this figure corresponds to the guarantees that both the matrix, Finance and Savings Bank, as banks that participated in the merger have asked the Treasury and has yet to return. The last government a restructuring plan of the entity involved the injection of public funds by up to 10,000 million.
Another 40 Billion Euros Needed
Here is a number 100% guaranteed to rise: Government tightens provisions in banking, another 20 to 40 billion euros required
The Government of Mariano Rajoy will be imposed on the bench in two batches sanitation of real estate assets that exceed the 75,000 million euros, since the initial 54,000 million would be added an amount not yet determined but will be located between 20,000 and 40,000 million.
The new reform is a change in the initial approach made by the Minister of Economy, Luis de Guindos, shortly after entering office, he announced that the bank needed to be sanitized at 50,000 million euros to eliminate the risk real estate.
The explanation is that the new provisions will fall on the loan portfolio of the banking sector builder and promoter until now considered “no problem”, about 140,000 million.
The total exposure of Spanish banks to “brick” of around 320,000 million and the Government decided in early February that it was necessary to increase especially the provisions on toxic assets, some 180,000 million.
Take a look at the numbers tossed around in that article. Amazingly, Rajoy lowered loan loss provisions from previous estimates.
No Bid for CatalunyaCaixa, Value Less Than Zero
Spain has already sunk 3 billion euros into CatalunyaCaixa, a nationalized bank. On Wednesday it sought to unload the bank to the highest bidder. There were no bids at zero euros.
Kiss 3 billion goodbye, CatalunyaCaixa value to ‘zero price’
While the PSOE and the PP are engaged in a war of words over which political party has used more public funds to rescue banks, the Ministry of Economy continues with ongoing auctions nationalized entities. The most important is to CatalunyaCaixa, to which the state has injected nearly 3,000 million euros.
Sources interested in staying with CatalunyaCaixa explained that due to the Catalan bank’s expected loss is evident that own resources are of little or zero. An assertion that is supported by the financial group’s total exposure to brick Barcelona, in loans to developers and individuals. The figure amounts to about 15,000 million, of which 11,000 correspond to real estate loans to builders.
Of these 15,000 million CatalunyaCaixa 4000 has already equipped, so that the maximum expected loss is calculated on 11,000 million. Of that total, the FDA will take 80% total, ie up to 8,800 million in the event that all assets related to brick valiesen not nothing . But the ultimate purchaser will have to deal with the remaining 2,200 million, almost the equity that has the financial institution.
An asset may deteriorate further if the government tightens further obligation to provide healthy home loans, those customers still pay regularly. Sources interested in bidding say the most likely to have to ask for additional public funding to cover the transaction. One rationale is explained by the needs that have to refinance CatalunyaCaixa 30,000 million euros in wholesale debt.
Thus, the net value of CatalunyaCaixa is at best a negative 11 billion euros (negative 2.2 billion counting 8.8 billion in additional government guarantees), but not counting losses on 30 billion in wholesale debt.
Eight Nationalized Banks
There are few things more unpleasant for a government to explain the public bailout of the banks at a time when citizens are the biggest cut social rights of its democratic era. That is the case in Spain. The Spanish financial sector, has spent over three years to present himself as one of the strongest in the world to become the major concern in Europe.
The surfeit of real estate assets of the bank has already made the intervention or nationalization of eight banks. Between 2009 and 2010 involved two savings banks (Caja Castilla La Mancha and Cajasur) in 2011 were nationalized four others (CAM, which also was also seized, Unnim, CatalunyaCaixa and Novagalicia Bank). The lot is completed by the Banco de Valencia in 2011 (and its nationalization this year) and, once confirmed, the operation of Bankia. And in most cases, moreover, after mergers with public aid. The number of cases has increased from 45 to nine (not counting CatalunyaCaixa or Novagaliciabanco in the auction process).
The partial nationalization of the BFA, the matrix of Bankia, is the most important aspect of this crisis.
Germany Fears “Bottomless Pit”
Der Spiegel reports “The Bundesbank has no idea of what is happening in Spanish banks”
The German magazine Der Spiegel takes the events following the resignation of Rodrigo Rato as chairman of Bankia to emphasize the need for financial reform, not only in Spain but throughout Europe.
The publication emphasizes that at this time, the Spanish banking system is built on unstable loans worth approximately one trillion euros and encrypts the Spanish banking rescue between 50,000 and 200,000 million.
“Since that amount of money would be an overload for both banks to the government budget, experts believe that the Spanish government should seek urgent assistance to European Financial Stability Fund (EFSF).
However, Der Spiegel notes that Mariano Rajoy “resists this movement,” because it would give members of the euro “a voice in governing the country.” Also displayed are the magazine, also hang the disgrace to Spain as a country of high risk and, probably, “this will cause isolation of the international financial markets for a long time.”
Under the circumstances, says Der Spiegel, direct payments to the banks of the euro countries become “a sensitive issue.” The German Government completely rejects the idea “for fear that their money disappear into a bottomless pit.”
In fact sources said that the German central bank, the Bundesbank, say they have no clue what is happening in Spanish banks.
Bottomless Pit is Exactly Correct
Spain, like Greece before it, is indeed a bottomless pit.
This is not a problem any amount of austerity or reforms can fix. Is Spain going to come up with 200 billion euros to support a trillion in bad loans?
Here is the answer: Not now, not ever, never.
The sooner Europe faces that simple fact the better. Instead, ECB president “Super” Mario Draghi spawned off the LTRO (long term refinance operation) that was supposed to have solved everything.
That LTRO actually made matters worse. Spanish banks levered up on their own debt, and now yields are back above 6 percent and the banks are underwater on those bond purchases.
Expect Slow, Devastating Torture
In case you missed it, please consider Top Tweet in Spain “Do as Iceland Did, an approach I endorse 100%.
The only solution that makes any sense is a breakup of the eurozone, That solution is coming, the only question is how.
The best approach would be for Germany to kiss the euro goodbye immediately. The painful approach will be more bailouts, more austerity, more tax hikes (and no reforms) in the same devastating manner that destroyed Greece.
Unfortunately, slow, devastating torture appears to be in the cards.
Mike “Mish” Shedlock
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