Is this a Health Warning for Spanish Banking and Savings Sector?
The first of the massive Spanish Cajas goes down on 30th March 2009. Something has to give. Real Estate, Construction and related has in the recent past represented well over 22% of the Spanish GDP. If Spanish banks are forced to mark the value of these "related" assets to objectively real 2009 market prices then then it is not difficult to see that the effects will be devastating.
"Spain's government is prepared to recapitalise healthy Spanish banks, but prefers them to first use Spain's Deposit Guarantee Fund (FGD) to ease liquidity or capital problems. Quintas said the FGD, which holds 7.2 billion euros ($9.38 billion) in bank contributions, was not large enough to avoid systemic risk among savings banks."It's not enough to even start," said Quintas."
"Around 48% of Spain's lending business is in the hands of cajas de ahorro, unlisted savings banks largely controlled by the country's regional governments. Amid the collapse in the Spanish construction sector and an ensuing jump in delinquent loans, many of these are knee-deep in trouble. Now, the industry body that represents them is calling on the government to take urgent action or face "dramatic consequences." "We are facing the worst crisis in 80 years, and what we are doing simply isn't enough," Juan Ramón Quintás, president of the Spanish Confederation of Savings Banks, told members of congress at a hearing Tuesday. "If we fail, the crisis will drag us under."
".... Solbes said the bank was solvent and only suffered from "temporary" liquidity problems after making mistakes such as lending heavily to the construction and property sector before it went bust last year.
Clients could "calmly" leave their savings at the CCM, Solbes said, though some withdrew theirs on Monday.
Contrary to other European countries, Spain had not spent "a single cent in budget terms" on rescuing banks, giving them only loans and guarantees, Solbes explained.
The minister did, however, concede that no financial system was "immune" to the current problems.
Spanish lenders had long been protected by strict regulations contrary to high-risk investments, but they have now been hit hard by the collapse of the key housing sector.
Unemployment also stands at 14 per cent, the highest in the European Union, after the economy slipped officially into a recession late last year.
Soaring loan defaults affect especially savings banks, the assets of which are not as diversified as those of bigger lenders, and many of which were heavily dependent on the housing sector.
Savings banks have also suffered from being under the control of regional politicians instead of politically independent bankers, several editorials pointed out.
The CCM bail-out dealt a new blow to the government's economic credibility just as Zapatero was preparing to discuss strategies against the global crisis at the upcoming G20 summit in London.
It immediately affected investor confidence, eroding shares of the banking giants Santander and BBVA at the Madrid stock exchange.
The CCM case was the first time that the central bank mounted a major operation to rescue a bank since it took control of the much bigger Banesto in 1993.
The government has pledged to guarantee up to 100 billion euros in new bank debt to inject liquidity into struggling banks which cannot keep afloat through private deals.
The sudden rescue of CCM, after it failed to negotiate a merger with Unicaja, and the fact that its management was replaced made it seem that the government downplayed its problems, the economic newspaper Expansion said in an editorial.
"CCM is the first Spanish victim of the financial crisis, but probably not the last," the daily concluded"
