Tag Archives: Spanish Banks

Who’s Most Afraid of a Latin American Debt Crisis (Apart from Latin America)? by Don Quijones

The contagion metaphor often used in debt crises doesn’t really fit. It’s not like an overindebted entity “infects” healthy entities and the disease then spreads. The better analogy is a line of dominoes, and as one domino falls it knocks over a line of other dominoes, and all the dominoes represent overindebted entities. From Don Quijones at wolfstreet.com:

It’s not just countries that are at risk of contagion.

Economic history appears to be rhyming once again in Latin America. Perennial credit-basket-case Argentina was one of the first countries to suffer a major currency crisis this century. Now, its government has asked the IMF for a brand-new bailout. But if this classic last-gasp fix was meant to calm the markets, it isn’t working.

Previous Latin American debt crises have taught us two things:

  1. The direct impact on the general populace, already suffering from sky-high poverty rates, is devastating;
  2. Once the first domino falls, contagion can spread like wildfire.

The debt crisis of the early 1980s, which spread to virtually all corners of the region, famously paved the way to Latin America’s “lost decade.” Mexico’s Tequila Crisis of 1994-5 at one point became so serious that it almost brought down some of Wall Street’s biggest banks.

At the moment, as long as the US dollar and US yields continue to rise, emerging market jitters can be expected to grow. As British financial correspondent Neal Kimberley notes, markets often behave like predators, running down what they perceive as the weakest prey first — a role being filled, with usual aplomb, by Argentina.

Emerging market weakness is by now a generalized trend. The jitters could soon spread to Latin America’s two largest economies, Brazil and Mexico, which between them account for close to 60% of Latin America’s GDP. Both of the countries face general elections in the next two months. In Brazil the most popular presidential candidate, former president Luiz Inácio Lula da Silva, is running his campaign from behind bars, where he serves a prison sentence after having been convicted of corruption. In Mexico, the front runner, Andres Manuel Lopez Obrador, has the country’s business elite so spooked that it has launched a “Project Fear” against his candidacy.

Dalio’s $13 Billion Short: Bridgewater Unveils Its Biggest Ever Short Position, by Tyler Durden

The world’s largest hedge fund complex is making a big bet against Italian and Spanish financial stocks, and a few European industrial concerns. From Tyler Durden at zerohedge.com:

Last October, Italy’s government was angry when the world’s largest hedge fund, Ray Dalio’s Bridgewater unveiled it had amassed a sizable  $713 million short against Italian financial stocks, its biggest disclosed bearish bet in Europe.

Then last week, and just one month before Italy’s March 4 elections – which the broader market stubbornly refuses to acknowledge are a risk factor – Bridgewater tripled down on its bearish bets against Italian banks and insurers, making the position the largest thematic short carried by the world’s biggest hedge fund.

As we reported last Thursday, Bridgewater boosted its bearish bets against Italian companies to $3 billion and 18 firms, up four-fold from just over $713 million in early October, further infuriating Italian authorities. As Bloomberg added, Bridgewater’s bearish bets against European companies as a whole totaled $3.3 billion, spread among 20 names.  In addition to his previous negative exposure, Dalio disclosed a short position in transport-infrastructure provider Atlantia and added to its largest short bet, against lender Intesa Sanpaolo SpA.

The growing short comes just days after Dalio told a Davos audience that “holding cash is now stupid”… and literally days before the biggest market crash since Lehman.

Fast forward to today, when Dalio’s bearish fascination is starting to get a little concerning, because according to the latest Bloomberg summary, Bridgewater now has at least $13.1 billion in European Union shorts, quadrupling the $3.2 billion short from last week, and over 18 times more than the fund’s original position last October.

In the past week, Bridgewater put more than $1 billion to work betting against oil giant Total SA – making it the firm’s largest disclosed short holding in Europe. 

As Bloomberg notes, Europe’s energy titan has been riding out the biggest industry downturn in a generation by selling assets and cutting spending. The hedge fund also started a bearish Airbus SE position, investing about $381 million against the aircraft maker. Among other short positions, it disclosed wagers against BNP Paribas SA, ING Groep NV and Banco Santander SA.

Amusingly, since the Feb. 8 regulatory filings were made public, Total fell 1% as markets slumped, while Dalio’s other shorts, Airbus, BNP Paribas, ING Groep and Banco Santander sank roughly 2%.

To continue reading: Dalio’s $13 Billion Short: Bridgewater Unveils Its Biggest Ever Short Position


Former IMF Chief and Dozens of Former Bank Execs Just Got Sentenced to Jail, by Don Quinines

Here’s a heartwarming tale, but we don’t know if the parties involved will actually go to prison and the rest of us will all live happily ever after. From Don Quijones at wolfstreet.com:

But will they actually warm a bench in a Spanish prison?

The unimaginable just happened in Spain: two former bank CEOs, Miguel Blesa (CEO of Caja Madrid) and Rodrigo Rato (CEO of Bankia) were just awarded prison sentences of six years and four-and-a-half years, respectively, for misappropriation of company funds.

Rato was also Managing Director of the IMF from 2004 to 2007. He was succeeded by another luminary, Dominique Strauss Kahn.

Now, the question on everyone’s mind is will Blesa and Rato actually serve the sentence (more on that later).

Dozens more former Caja Madrid senior executives, most of whom are closely connected to either, or both, of the country’s two main political parties and/or unions also face three to six years in prison. They were found guilty by Spain’s National High Court of misusing company credit cards. Those cards drained money directly from the scarce funds of Caja Madrid, which at the height of Spain’s banking crisis was merged with six other failed savings banks into Bankia, which shortly thereafter collapsed and ended up receiving the biggest bail out in Spanish history, costing taxpayers over €20 billion, to date.

Between 2003 and 2012 Caja Madrid (and its later incarnation, Bankia) paid out over €15 million to its senior management and executive directors through its “tarjeta negra” (black card) scheme. According to accounts released by Spain’s bad bank, FROB, much of that money went on restaurants, cash withdrawals, travel and holidays, and the like.

The amounts – which did not show up on any bank documents, job contracts, or tax returns – may be small, given the magnitude of the misdeeds that led to the Spanish bank fiasco, but it’s the principle that counts.

Only 4 out of 90 Caja Madrid senior managers, executives, and board members had the basic decency to turn down the offer of undeclared expenses. For the rest, it was an offer they could not refuse.

To continue reading: Former IMF Chief and Dozens of Former Bank Execs Just Got Sentenced to Jail

Nightmare Before Christmas for Spanish Banks, by Don Quijones

Most Spanish banks are looking at huge fines and restitution to mortgage borrowers for failing to inform them that their mortgages were a heads-we-win-tails-you-lose-proposition for the banks, and consequently they were overcharged. From Don Quijones at wolfstreet.com:

The European Court of Justice just delivered a landmark ruling that could cost Spanish banks – or Spanish taxpayers, in case of another bailout – billions of euros: 40 out of Spain’s 42 banks will have to refund all the money they surreptitiously overcharged borrowers as a result of the so-called “mortgage floor-clauses” that were unleashed across the whole home mortgage sector in 2009.

These floor clauses set a minimum interest rate, typically of between 3% and 4.5%, for variable-rate mortgages, which are a very common mortgage in Spain, even if the Euribor dropped far below that figure. In other words, the mortgages were only really variable in one direction: upwards!

This, in and of itself, was not illegal. The problem is that most banks failed to properly inform their customers that the mortgage contract included such a clause. Those that did, often told their customers that the clause was an extreme precautionary measure and would almost certainly never be activated. After all, they argued, what are the chances of the Euribor ever dropping below 3.5% for any length of time?

In its original ruling from 2013, Spain’s Supreme Court argued against applying the law against floor clauses retroactively to 2009 on the grounds that it would potentially cripple the banks’ finances. The EU’s advocate general, Paolo Mengozzi, echoed that sentiment in July when he proposed putting Spain’s “macroeconomic considerations” (legalese for “what is best for the banks”) before the microeconomic needs of consumers.

To continue reading: Nightmare Before Christmas for Spanish Banks

Deloitte About to Pay for its Spanish Sins? by Don Quijones

From Don Quijones at wolfstreet.com:

Bilked Investors, including the US government, are furious.

Spain’s two biggest bankruptcies ever, Bankia (2011-2012) and Abengoa (2015-?), share one thing in common: their auditor.

In both cases, the New York-based big-four firm Deloitte was responsible for making sure the financial statements fairly represent the financial position and performance of the companies, and that they conform to the accounting standards. Turns out, the accounts were as crooked as they come.

Both companies ran aground. Investors in the US and Spain got bilked. The US government got stiffed. And now it seems the auditor may actually end up paying a hefty price for having “seriously” infringed Spain’s account auditing laws.

Zero Independence

In the case of Bankia, Deloitte was not just the bank’s auditor, it was also the consultant responsible for formulating its accounts. As El Mundo puts it, first Deloitte built Bankia’s balances, then it audited them, in complete contravention of the basic concept of auditor independence.

Given this deeply compromising set-up, it’s hardly any surprise that Deloitte (together with Spain’s market regulators) was happy to confirm in Bankia’s IPO prospectus that the newly born franken-bank, which had been assembled from the festering corpses of seven already defunct saving banks, was in sound financial health, having made a handsome profit of €300 million just before its public launch in May 2011. It was a blatant lie: in reality Bankia was bleeding losses from every orifice.

But the lie served its purpose: 360,000 credulous investors were lured into buying shares in the soon-to-be-bankrupt bank. Another 238,000 bought “preferentes” shares or other forms of high-risk subordinate debt instruments being peddled by Bankia’s sales teams as “perfectly safe investments.”

Almost all of those people would end up losing most of their money, as the value of Bankia’s shares nose-dived spectacularly from €3.50 a piece to €0.01. Now, five years later, the bank’s duped investors are finally beginning to claw back some of the money they lost, thanks primarily to the limitless generosity of Spain’s unconsulted taxpayers, who have already stumped up tens of billions of euros to bail Bankia out.

As for Deloitte, it was found by a recent investigation to have ignored at least a dozen glaring errors in Bankia’s accounts. The company had to pay a €12 million fine for “seriously” infringing Spain’s auditing laws, but that hasn’t stopped it from continuing to audit the state-owned bank’s books. No, seriously.

To continue reading: Deloitte About to Pay for its Spanish Sins?

Four Things that Keep Spain’s Senior Bankers Awake at Night, by Don Quijones

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

Spanish Judge Violates Global Rule, Makes Bank President & Former IMF Chief Pay for Financial Crimes, by Don Quijones

From Don Quijones, at wolf street.com:

Bankers never go to jail. This is one of the unwritten new laws to which most of us have grown wearily accustomed in this new post-crisis reality. Also begrudgingly taken for granted is the fact that a banker’s fortune will never be seized or confiscated by the authorities; in today’s new Gilded Age a banker’s gains, whether ill-gotten or not, are his of hers until death do them part.

However, nobody seems to have told any of this to Fernando Andreu, the Spanish judge investigating Bankia’s allegedly fraudulent and for investors disastrous 2011 IPO. On Friday 13th, he ordered Bankia, its parent company BFA, the bank’s former chairman, Rodrigo Rato, its former deputy chairman, José Manuel Olivas, and former Bankia board members Francisco Verdú and José Manuel Fernández to pay an €800 million civil liability bond for signing off on the bank’s 2010 financial statements – financial statements that were included in the IPO brochure and “whose veracity is questioned with solid and well-founded evidence”.


To continue reading: Spanish Judge Makes Bank President Pay