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Second-largest Spanish bank has funding trouble

Demon of Light

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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.
 

donsutherland1

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It is possible that Spain which, like the U.S. also experienced a real estate bubble and buildup of excessive leverage that feeds such a bubble, may be moving into the early stages of a banking system crisis. As Spain's government works to mitigate the risks associated with its fiscal position, the temporary slowing of the economy that could result from such policies could exacerbate pressures on Spain's financial system. Considering that the fallout in the wake of collapsed real estate bubbles can be protracted, Spain's banking system will likely face significant headwinds for some time to come. Worse, should Spain's government wind up experiencing funding difficulties, the contagion could also spread to Spanish financial institutions. Hence, there remains a real risk that Spain's banking system could experience widening difficulties over the next 12-24 months.

Already, events in Spain's financial sector, have rendered obsolete what amounted to a sort of premature celebration in the just published May/June 2010 edition of Foreign Affairs. In that publication, Council of Foreign Relations Senior Fellow for International Business, Marc Levinson, wrote:

Spain's weathering of the recent financial crisis highlights the positive effects of regulatory diversity. The large Spanish banks withstood the crisis better than most of their European counterparts, despite the collapse of Spain's property market. Many scholars attribute Spain's success to its decision to depart from the Basel II norms in setting capital requirements. Alone among the large economies, Spain required its banks to set aside extra reserves for potential future loan losses during the boom years.
 

Gipper

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Is Spain known for massive manipulation of fiat? I'll admit that I don't know a great heap about European economies and their inner workings.

It almost sounds as if they have no asset backing for their currencies...things that a FDIC would help to alleviate here.

I could've sworn that Europe's markets were more tied to bullion, and less likely for something like this to happen.
 

donsutherland1

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Is Spain known for massive manipulation of fiat? I'll admit that I don't know a great heap about European economies and their inner workings.

It almost sounds as if they have no asset backing for their currencies...things that a FDIC would help to alleviate here.

I could've sworn that Europe's markets were more tied to bullion, and less likely for something like this to happen.
Whether or not currencies are backed does not provide countries with immunity from banking crises. Banking crises were commonplace prior to the introduction of fiat currencies. Global banking crises also were commonplace during that period, as well. As global data does not extend back before 1890 (select country data does), it should be noted that global banking crises occurred in 1890-91, 1907-08, 1914, and 1929-31.
 

PeteEU

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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.
And that is why the markets freak out at the slightest rumor.. people like you and hit articles like this. Where are the link in the article? He comes with a lot of BS crap without backing it up with actual news articles or any evidence. Let me guess he is shorting BBVA and Spanish bonds I bet.........

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.
Cajasur was a minor regional bank as were the four others. Cajasur was owned by the Catholic Church and was in merger talks with another bank that would have saved it, but local and religious politics poped its head up and they backed out which forced the Spanish National Bank to take over Cajasur. Regional saving bank reform is needed and they hold a large portion of the Spanish mortgage market, but saying that the regional savings banks will bring down everything is... idiotic. And this was the second, yes.. nr. 2 bank take over since the crisis started. This year alone, the FDIC has seized over 70 banks in the US. Where is the panic over the US bank seizures? But on the second one in Spain over 3 years, and panic sets in...pathetic market panic based on little facts.

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.
It wont. First Spain's biggest banks are rock solid and some of the best performers during the crisis. Secondly, that BBVA could not get funding on the commerical paper market has more to do with ignorance of the market to the Spanish banking market than any sense of reality. The markets were yet again spooked by the Cajasur banking siezure and that hurt BBVA chances of getting money. Ironically BBVA is buying up US banks on the cheap because of the many failures in the US...

Secondly, 20% unemployment sounds high, but in reality having relatively high unemployment in Spain (not this high) is the norm. During the boom years, Spain still had near 10% unemployment. Also Spain's economy is going through restructuring no doubt about that, but they are doing it unlike say the US. Also Spain had a budget surplus for the last decade, pushing its sovereign debt down to 30% when the crisis started. It still has some of the lowest sovereign debt in Europe and North America.

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.
What sovereign debt problems? Spain's debt is lower than the US and UK...More media hype and speculator fed panic.
 

PeteEU

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Is Spain known for massive manipulation of fiat? I'll admit that I don't know a great heap about European economies and their inner workings.

It almost sounds as if they have no asset backing for their currencies...things that a FDIC would help to alleviate here.

I could've sworn that Europe's markets were more tied to bullion, and less likely for something like this to happen.
It was the Spanish FDIC that seized the bank.
 
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