- May 7, 2010
- Reaction score
- Political Leaning
More troubles for both Spain and the Commercial Paper market. Spanish top bank BBVA is said to have be unable to renew a $1 billion commercial paper line, according to the WSJ, which touches on the topic we discussed yesterday first about complications developing in the top-tier ECP market. BBVA still has substantial european-based funding and deposits, and another $9 billion in CP, which will likely also soon be pulled. This will certainly put further pressure on CP spreads, as the European liquidity crisis is alive and well. The news has impacted both the EURUSD and the price of European financial firms, which have sagged since this news has come out.
Source: Zero Hedge
This bit of news has me freaked out. Even at the current exchange rate BBVA is as large in terms of assets as Lehman Brothers. Relative to the size of Spain's economy its failure would be equivalent to Citigroup, Bank of America, and JP Morgan Chase failing all at the same time.
It also has branches here in the U.S. with around $50 billion in assets. There has been some bad news regarding Spanish banks with Cajasur seized by the government and four others going through a distressed merger.
Spain's economy has already been doing bad with over 20% unemployment and it would be incomprehensible for Spain's government to save its second-largest bank given its own debt issues. I also doubt the EU Member States will have much appetite for any bailout.
Basically all we can do is hope this does not lead to further financing problems and failure because it would be even worse than Lehman Brothers given the weakened economy and Spain's sovereign debt problems.