Spanish banking stocks fell in July after Standard & Poor’s Ratings Services and Fitch Ratings downgraded the country’s leading lenders, citing dimming economic growth prospects, a depressed property market and turbulence in capital markets.In reports issued later, the two credit rating agencies said they are keeping the negative outlook on all the banks.
Mr (has) Bean at the G20, ex Spanish P.M. Jose Luis Zapatero
IMF chief Christine Lagarde, the new woman in P.M. Mariano Rajoy’s life.
Spain has become the new poster child for what ails the EU periphery, with its 10-year bond rate surpassing even Italy’s in a very short timespan. Looking at the details, that shouldn’t be all that surprising.
For starters, the BBC’s Robert Peston:
Spain becomes eurozone’s weaker link
[..] if you add together all debts – government debts, corporate debts, financial institution debts, and household debts – Spain is a much more indebted or leveraged country than Italy……
… the same group of global investors lend to governments, banks and businesses, so if they become worried about a country’s economic prospects they become wary of lending to any of its economic actors. [..]
… the burden of paying debts suppresses economic activity, whether the debtor is a household, a government, or a company.
So here are the numbers – and for Spain they are hair-raising. In 1989, Spain’s ratio of government debt to GDP – the value of what the country produces – was just 39%. Its ratio of corporate debt to GDP was 49%, the ratio of household debt to GDP was just 31% and financial sector debt was just 14% of GDP. The aggregate ratio of debt to GDP was 133%.
By the middle of this year, the picture was utterly different. The aggregate ratio of debt to GDP had soared to 363% of GDP. And it was really from 2000 onwards, the euro years, that Spain really got the borrowing bug, with the ratio of aggregate debt to GDP rising by a staggering 171 percentage points of GDP.
The biggest increment over the past 20 odd years has been in the ratio of corporate debts to GDP, which has soared to a staggering 134% of GDP. Spanish companies have become addicted to debt.
Ilargi: The 800 billion peseta behemoth in the Spanish room is the real estate sector. The boom has been huge, and so will be the downfall. Spain is a favorite tourist destination, and it was construction for that sector that threw all caution to the wind. Sharon Smyth for Bloomberg has some ugly details:
‘Unsellable’ Real Estate Threatens Spanish Banks
Spanish banks, under pressure to cut property-backed debt, hold about €30 billion ($41 billion) of real estate that’s “unsellable” [..]
Spanish lenders hold €308 billion of real estate loans, about half of which are “troubled,”[..]
… unfinished residential units will take as long as 40 years to sell [..]
“Around 35 percent of Spain’s land stock is in the ex-urbs, which means it’s actually worth nothing.”
Spanish home prices have fallen 28% on average from their peak in April 2007, according to a Nov. 2 report by Fotocasa.es, a real-estate website, and the IESE business school.
Land prices dropped by more than 60% in the provinces of Lugo, A Coruna and Murcia, and 74 percent in Burgos since the peak in 2006, data from the Ministry of Development and Public Works showed. Land values fell 33%nationwide.
“If there were to be a proper mark to market of real estate assets, every Spanish domestic bank would need additional capital [..]
Santander has €9.2 billion of foreclosed assets, followed by Banco Popular SA with €6.05 billion, BBVA with €5.87 billion, Bankia with €5.85 billion, Banco Sabadell SA with €3.6 billion and Banco Espanol de Credito SA with €3.36 billion [..]
Spain’s bank-bailout fund took over three lenders on Sept. 30, valuing them at zero to 12 percent of book value.
Ilargi: And we can finish off for now with Christopher Bjork at the Wall Street Journal
Spain Credit Crunch Deepens
Lending by Spanish banks contracted by 2.64% on the year in September, the sharpest annual decline on record, pointing to a deepening credit crunch in Europe’s fourth-largest economy.
Data released Friday by the Bank of Spain showed that some €48.4 billion in credit was removed from the Spanish economy over the past year through September. The decline was the biggest on record in the country since the central bank began to track lending growth in 1962.
Ilargi: And that there’s yet another major factor in play, one that has so far been largely overlooked: capital flight. Make that: Capital Flight.
How can you grow an economy, if that were possible to begin with in view of the other circumstances, if not only there’s no money coming in from abroad, but your own people are taking their money out?
Capital flight is taking place all over Europe, from individuals and businesses alike.
The Automatic Earth 21st November