You are currently browsing the tag archive for the ‘Spain’ tag.

Analysts are poring over new statistics on debt exposure from the Bank for International Settlements released today. As has become customary with each quarterly release of this data, the report’s (virtual) pages are flipped directly to the section detailing the size of banks’ portfolio of bonds issued by governments on the euro area’s troubled periphery.

French and German banks are the most exposed, by far, to troubled government debt. Although banks have been reducing their exposure—the value of debt from Greece, Ireland, Portugal and Spain held by foreign banks fell by 35% last year—significant holdings remain. German banks, for example, were sitting on more than 40% of the US$54bn in foreign-held Greek government debt at the end of 2010.

The inevitable restructuring of Greek debt will be painful for lenders, although the severity will vary according to the method employed. In the meantime, attempts to cajole banks into a voluntary refinancing of Greece’s daunting debt pile (along the lines of the “Vienna Initiative” in central and eastern Europe) will continue, despite a glaring lack of incentives for lenders to take part.

As ever, the IMF’s latest Global Financial Stability Report is worth a look, not least because the organisation’s chart makers seem to be getting a lot more creative. Some of the infographics in the report’s latest edition verge on the psychedelic.

More importantly, however, the IMF issues a stern rebuke to financial regulators for “incomplete policy actions and inadequate reforms”. The global banking system remains vulnerable to shocks, as some lenders remain “caught in a maelstrom of interlinked pressures”, the IMF warns.

Euro area banks are singled out as particularly vulnerable. Thinly capitalised and more reliant on wholesale funding than many of their counterparts elsewhere, some of the currency union’s banks—particularly those in the bloc’s troubled periphery—are now shut out from most funding markets. This is reflected in the interest rates that the most desperate banks are offering on deposits, seeking to reduce their reliance on official support by luring funds from wary savers.

The rate hikes by Greek, Portuguese and Irish banks in recent months have been significant, dampening these institutions’ profitability and prolonging an already protracted recovery process. Another interesting conclusion to draw from the chart—adapted from the one that appears in the IMF’s report—is that banks in Italy seem relatively more desperate for deposits than banks in Spain.

Spain’s largest listed commercial banks reported their year-end results this week, giving some respite from the worries about a new round of restructuring at the country’s teetering savings banks (cajas).

Spain’s listed lenders are generally better capitalised and more profitable than the cajas, thanks in large part to their foreign franchises. Last year, Santander generated 25% of its net profit in booming Brazil, versus only 15% in sickly Spain. BBVA, meanwhile, derived 45% of its earnings from Spain and Portugal, with its Mexican business, home to 37% of group profits, not far behind.

Spain’s third-largest listed bank, Banco Popular, is a largely domestic lender, which is reflected in a higher non-performing loan ratio than Santander or BBVA. Still, Popular remains conservatively capitalised, with a core capital ratio of 9.4%, close to BBVA’s 9.6% and higher than Santander’s 8.8%.

There was some respite for Spain and Portugal this week, as both of the embattled euro-area members held relatively successful bond auctions. Analysis of the bond sales can be found at the parent site: “Spain: Unsteady balance” and “Portugal: Hard sell”.

Although benchmark yields in Iberia have had a good week—since Monday, the Portuguese ten-year government yield has fallen by 44 basis points while Spain’s has dropped by 21 basis points—the news coming from the countries’ banks is less encouraging. Still largely shut out from the capital markets, both Spanish and Portuguese banks boosted their borrowing from the European Central Bank last month. Data released this week show that Spanish banks relied on €67bn in funds from the ECB in December, up from €61bn the month before; Portuguese banks, meanwhile, tapped the ECB for €41bn in December, up from €38bn in the previous month.

For Portugal, the Economist Intelligence Unit believes that it is a question of when, not if, the country will seek access to the EU/IMF emergency credit facility (probably during the first half of this year). Spain is expected to service its debt without resorting to a bail-out, although its beleaguered banking sector remains a major downside risk to the sovereign.

As financial markets anxiously await the results of stress tests on Europe’s largest banks, questions are being asked about the level of detail that will be provided on lenders’ exposure to troubled sovereign debt. After all, a key aspect of the test is the ability of Europe’s banks to withstand a “sovereign risk shock”.

New data from the Bank for International Settlements (BIS) provides some new, if vague, clues on banks’ exposure to the countries most at risk under the stress test’s sovereign-shock scenario. The BIS data, updated through the end of March, gives the total exposure of a country’s banks to borrowers abroad. It does not break out the types of debt—personal, commercial, sovereign—but instead gives a general indication of which banks might be the most exposed to Europe’s trouble spots.

Not surprisingly, most banks trimmed their exposure to Greece, Portugal and Spain in the three months to March. The top creditors to Greece and Spain—French and German banks, respectively—cut their lending in the countries by double-digit percentages in the first three months of the year. Meanwhile, in a show of southern European solidarity, Portuguese banks increased their exposure to Greek borrowers by 20%.

The Spanish football team won the World Cup with a strategy that relied on dominating possession. But whereas keeping the ball served the country’s footballers well, a similarly grabby attitude among Spain’s banks is cause for concern.

The latest statistics from the European Central Bank show that Spanish banks boosted their borrowing from the central bank significantly last month, taking €126bn, or nearly 50% more than they borrowed the month before. Euro-zone banks as a whole trimmed their borrowing from the ECB by 4% in June.

As Bloomberg notes, no Spanish banks have sold bonds publicly in the past two months, as jittery markets demand high yields amid fears over the health of Iberian lenders’ balance sheets. Until next week, when the results of the EU’s banking stress tests will relieve or ratchet up these fears, Spain’s banks may take some solace from the country’s footballers, who despite rough treatment eventually emerged victorious.

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

Demetrio Fernández is not a name that comes up often in international financial circles. But the bishop of Cordoba made headlines in the business press on May 22nd when CajaSur, a church-owned regional savings bank, or caja de ahorros, was seized by the Bank of Spain due to “viability problems”.

The CajaSur rescue, although affecting only 0.6% of the total assets of the Spanish banking system, rattled already jittery markets. With heavy exposure to Spain’s battered property market and limited recourse to external funds, the cajas represent worrying “pockets of weakness” in the Spanish financial system, according to the IMF.

Given Spain’s dire fiscal state, it needs the explicit threat of seizure of uncooperative lenders to speed the long-delayed restructuring of the beleaguered cajas. However, the risk remains that the savings banks lack the collective will to fix themselves.

Read more at Financial Services Briefing: “A dangerous precedent” (May 26th)

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

Concerns about Spain’s sovereign solvency overshadowed a strong set of fourth-quarter earnings from Santander. The resilience of the country’s largest bank in the face of major headwinds is generating praise, but also scepticism.

The sceptics have latched on to rumours about the potential listing of minority stakes in Santander’s US and UK arms. After all, in 2009 the bank was able to offset a spike in loan-loss provisions with capital raised from the listing of its Brazilian unit and sundry other one-off transactions. With worries about Spain’s moribund economy at “fever pitch,” according to a Moody’s report, the listing rumours persist despite denials from Santander’s management.

Even if Spain’s largest bank recorded a 13% rise in net income for the fourth quarter, easily outpacing its nearest rival, BBVA, it seems that opinions about Santander’s prospects are being driven as much by sovereign fiscal concerns as the bank’s own balance sheet.

Read more at Financial Services Briefing: “Santander under scrutiny” (February 11th)

The majority of data and analysis at Financial Services Briefing is available only to subscribers. Each week, a small share of content from the service is made available to non-subscribers.

Facing a deep recession at home, Spanish banks’ surprising resilience throughout the downturn has generated as many doubts as congratulations. After releasing its fourth-quarter results, Spain’s second-largest lender, BBVA, provided fuel for the sceptics’ fire.

A bad miss on quarterly earnings due to “extraordinary anticipatory provisioning” spooked the markets, which punished BBVA’s shares as well as those of its domestic peers. A re-evaluation of loan quality in BBVA’s Spanish, Mexican and American portfolios was to blame for the unexpectedly poor results, although company executives emphasised steady growth in net interest income as proof of a healthy core business.

Even if Spanish banks’ longer-term future is bright, the spectre of large loan losses stemming from the recent domestic credit bubble will loom over the sector for some time.

Read more at Financial Services Briefing: “Down to earth” (January 27th)

Facing a severe property slump and almost 20% unemployment, Spain is in a deep recession. As a result, the country’s banks must be in trouble. But large, listed lenders are weathering the storm remarkably well, thanks in part to strong franchises in Latin America.

Spanish banks 10-28-09

Critics argue that another reason these banks are performing well is because they are skimping on provisions for problem loans. For this reason, as banks reported their latest results—culminating today with Santander, Spain’s largest bank—as much attention was paid to entries deep in balance sheets as headline profit numbers.

A full analysis of reporting season in Spain is now up at the parent site [subscription required].