From Don Quijones at wolfstreet.com:
Despite reporting reasonably solid-looking annual results last year, Spain’s banking sector continues to bleed on the benchmark index, the Ibex 35. In the last 12 months alone, it has lost over a fifth of its combined share value — €40 billion of stock value that just vanished into the ether!
In recent days the shares of Spain’s biggest bank and only “systemically important financial institution” (i.e. officially ordained Too-Big-to-Fail bank), Grupo Santander, have plumbed lows that have not been seen since the mid-nineties.
A not inconsiderable part of this ugly picture is owed to deteriorating global macroeconomic conditions, in particular the slowdown of China and key markets in Latin America as well as Italy’s recent bail-in/out of its financial sector [read: Who Gets to Pay for the Italian Banking Crisis?]. However, there are a number of key aggravating factors that are almost exclusively domestic in scope and which could pose a very serious threat to the long-term health of Spain’s already much debilitated banking sector.
Here are four of the biggest worries weighing on investors’ minds.
1) The Banks’ Exposure to Colossal Corporate Insolvency.
Ever since the renewable energy giant Abengoa announced, in late November, that it was seeking preliminary protection from creditors, fears have grown about the potential ripple effects of what could end up being Spain’s biggest ever corporate bankruptcy. Since then the company has closed its subsidiaries and stopped servicing its debt in key markets like Mexico, Chile and Brazil while in the U.S. creditors have asked a federal judge to put Abengoa Bioenergy of Nebraska LLC into bankruptcy over its outstanding debt.
Spain’s banks are owed approximately €4.3 billion by the Seville-based company. About 20% of that is unsecured and may get wiped out. Santander is at the top of the pile with €1.56 billion of exposure, followed by publicly owned Bankia (€582 million), Catalonia’s biggest bank, Caixabank (€570 million), Catalonia’s second biggest bank Banco Sabadell (€387 million), Banco Popular (€334 million), Bankinter (€210 million) and the state-owned Institute of Official Credit (ICO, €161 million).
Most of the banks have made no provisions to hedge their exposure – hence their alleged refusal to accept a haircut on any of Abengoa’s debt, which in the end could be unavoidable [read: Spain Braces for Its Biggest Corporate Insolvency… Ever!].
To continue reading: Four Things that Keep Spain’s Senior Bankers Awake at Night
