Are Spain’s Banks Really As Good As They Look?

Well, Variant Perception’s Jonathan Tepper certainly doesn’t think so, and since his latest report on the Spanish banking sector cites me extensively and explicitly, I guess I don’t either.

Spain had the mother of all housing bubbles. To put things in perspective, Spain now has as many unsold homes as the US, even though the US is about six times bigger. Spain is roughly 10% of the EU GDP, yet it accounted for 30% of all new homes built since 2000 in the EU. Most of the new homes were financed with capital from abroad, so Spain’s housing crisis is closely tied in with a financing crisis.

The impact on the banking sector will be severe. Consider this: the value of outstanding loans to Spanish developers has gone from just €33.5 billion in 2000 to €318 billion in 2008, a rise of 850% in 8 years. If you add in construction sector debts, the overall value of outstanding loans to developers and construction companies rises to €470 billion. That’s almost 50% of Spanish GDP. Most of these loans will go bad.

Spanish banks, in our view, are now facing a very bleak outlook. Spain’s unemployment rate reached over 17%; there are now four million unemployed Spaniards and over one million families with not a single person employed in the family.

We argue and will document anecdotally in this report that:

• The real estate crash in Spain is worse than is widely believed, much as the subprime problem was much worse than people believed
• Spanish banks are hiding their losses and rolling over debt to zombie companies, much as Japan did in the last decade
• Investors are deluding themselves if they believe that Spanish banks are among the strongest in the world. (This is a new theme. See Forbes’s latest “Spanish Banks In Top Form” for an example of the new fawning articles on Spanish banks.)

If we are right, Spain will soon have zombie banks like Japan and it will face a prolonged period of deflation. However, Spain will be much worse.

The report is getting extensive coverage in the UK and Spanish press:

Financial Times – Are Spanish banks hiding their losses?

Expansión – El informe más catastrófico: “España sufre la madre de todas las burbujas inmobiliarias y su banca será zombie”

Cinco Dias – Una casa de análisis predice que España se enfrentará a una tasa de paro superior al 25%

Cotizalia – ¿Están los bancos españoles escondiendo sus pérdidas?

For those of you whose first language is Catalan I’ve organised a translation on my Catalan blog here.

This entry was posted in A Fistful Of Euros, Economics: Country briefings, Economics: Currencies by Edward Hugh. Bookmark the permalink.

About Edward Hugh

Edward 'the bonobo is a Catalan economist of British extraction. After being born, brought-up and educated in the United Kingdom, Edward subsequently settled in Barcelona where he has now lived for over 15 years. As a consequence Edward considers himself to be "Catalan by adoption". He has also to some extent been "adopted by Catalonia", since throughout the current economic crisis he has been a constant voice on TV, radio and in the press arguing in favor of the need for some kind of internal devaluation if Spain wants to stay inside the Euro. By inclination he is a macro economist, but his obsession with trying to understand the economic impact of demographic changes has often taken him far from home, off and away from the more tranquil and placid pastures of the dismal science, into the bracken and thicket of demography, anthropology, biology, sociology and systems theory. All of which has lead him to ask himself whether Thomas Wolfe was not in fact right when he asserted that the fact of the matter is "you can never go home again".

8 thoughts on “Are Spain’s Banks Really As Good As They Look?

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  4. A few months ago, I noticed what looked like an organized commenting campaign in the readers’ columns of British on-line newspapers; comments that praised Spanish banks to the skies in very similar wording, even though the authors’ names were different.

    It makes me wonder if Spanish Banks even then realised that things were not as they ought to be.

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  7. It would seem even 12 months on the Spanish Banks continue to not face up to their real situation. Many empty developments they are partners in rather than just lenders so they are not shown yet as bad debts