Rating Agency Moody’s has downgraded the rating of 16 Spanish banks, by 1 to 3 levels, due to ‘the adverse conditions’ in which the banks operate, ‘the reduced credit solvency of the country,’ ‘the rapid worsening of the quality of assets’ and the ‘restrictions in access to capital markets’. The banks affected are Santander, BBVA, Banesto, Unicaja, Caixa Bank, Caja Rural de Navarra, Popular, Sabadell, Banco Cooperativo Espanol, Bankinter, Caja Rural de Granada, Liberebank, Cajamar, Lico Leasing and Confederacion Espanola de Cajas de Ahorro.
The International Institute of Finance warned yesterday that Spanish bank losses on bad loans could be as high as €260bn, with up to €60bn of extra capital needed to shore up the country’s troubled banking system. Separately, El País reports that the European Commission will speed up the disbursement of €939m from the EU’s Cohesion Fund for infrastructure projects which have already been completed in Spain, but are still awaiting payment.
…and 4 Regions
The Agency has also reduced the credit rating of Catalonia from Baa3 to Ba1, Murcia from Baa2 to Ba1, Andalucia from A3 to Baa2 and Extremadura from A3 to Baa1.
Valencia (Ba2) and Castilla-La Mancha (Ba3) have had their credit ratings confirmed as ‘rubbish bonds.’
Doubling the rescue fund
An analysis by Deutsche Bank maintains that the Eurozone’s permanent bailout fund, the ESM, would have to be doubled to effectively shield Spain, Belgium and Italy from resorting to capital markets and to prolong the Irish and Portuguese programmes for three years in the event of a Greek exit. The Bank also argues that in order to reduce the risk of capital flight from Spain and Italy and to support their banks, the (ECB) will have to launch a renewed liquidity program.
Education on strike
The education sector went on strike on Tuesday, against the radical cuts made by the government. More than 7.5 million students, and 1 million workers were mobilised. The trade unions reported an 80% participation in the strike, the government said it was only 19%.
Bad loans 8.36%
Bank of Spain reports that at the end of March the percentage of bad loans in the Spanish financial institutions was 8,36% of total. Bad loans represent 147,968 million, up by 1,578 million on the previous month and the highest percentage of bad loans in the past 18 years.
Local rates up 10%
Half of the municipalities in Spain have increased the local rates 10% for 2012 and 2013. Many of them have also seen an increase in the cadastral values, the basis on which the charges are calculated.
Deficit for 2011 revised upwards
After finding 4 Regions had higher shortfalls than initially reported, the Ministry of Finance has been forced to revise the deficit for 2011, which now stands at 8.91%.
The two Regions upsetting the previous calculations are Madrid and Valencia, both governed by Partido Popular. The Madrid Region had to admit their deficit was not 1.13%, as reported previously, but 2.2. Valencia reported initially a regional debt of 3.68%, but had to admit in reality it was 4.5.
Changes in Ley de Suelo (Law on land use)
The Government is preparing changes in the Law on land use, to facility rehabilitation of dwellings on Building Land, and removing unjustified charges. Six million dwellings in urban areas are more than 50 years old, and may need to be upgraded, providing work for between 180,000 and 290,000 building workers.
Further fall in sale of dwellings
Sale of new dwellings in March, including government subsidised ones, fell 17.2% on the same month last year, to 25,000. During the boom years more than 80,000 dwellings were sold per month. The reduction on the VAT on dwellings from 8 to 4% has been unable to slow down the reduction in sales.
184,595 unsold dwellings in Valencia
The Valencia Region has 184,595, twenty three per cent, of all unsold new dwellings; Andalusia 131,872 and Castilla-La Mancha 87,331; Murcia 66,176; Madrid 54,234; Galicia 53,610 and Catalonia 48,932.
The number of unsold new dwellings in Spain (re-sales not included) is now 800,927. That is 10.8 times that in 2006, before the bubble burst.
The weekly crisis
Due to the economic situation and the possibility that it will have to ask for considerable financial assistance of its banks, the Rating Agency Egan Jones has reduced the rating of Spain from BB+ to BB- (rubbish)
Nobel prize winner Paul Krugmann considers there is no alternative to Greece leaving the Euro Zone
New French President Hollande has proposed to recapitalise the Spanish banks with European funds
Pablo Pardo, Deputy Bureau Chief of El Mundo (Spain’s largest daily newspaper) urges the Government to negotiate a rescue now, before the situation becomes impossible
Roland Berger and Oliver Wyman are the two auditing companies selected by the Government as independent auditors of the Spanish banking sector
It is estimated China has investments of between 235,000 and 470,000 million euros in European public bonds, but is now withdrawing from the southern countries to concentrate investments in the safer Germany
The Treasury placed a bond issue of 2,525 million euros in letters over 3 and 6 months, but at a higher interest rate than the last one
The high interest which Spain must pay on its bond issues is also affecting the financing of the Spanish companies. Telefonica is now having to pay 5.26% against 4.25% in February, and Iberdrola must offer an interest rate of 4.82%, up from 3.88 in February
The country risk of Spain has eased to 464 points in the hope that the EU summit on 22nd will assist Spain’s troubled economy. New French President Francoise Hollande has re-launched the idea of Euro Bonds, but Chancellor Angela Merkel of Germany is adamantly opposed
The OECD has proposed that Spain close down the banks which are not viable, maybe 30% of the total, and has drastically reduced Spain’s economic perspectives, estimating 1.6% recession this year and 0.8 in 2013
Thinking the unthinkable
By Per Svensson
