SERIOUSLY THOUGH! - what are the Spanish banks to do?

"A Spanish chap I know from Valencia says that there are now huge parking lots full of hundreds if not thousands of unsold cars that banks have had to repossess.  There are Mercedes listing at 66,000€ now NOT selling at 12,000€.  Thousands out of work.

We are on a helter skelter and I can't see the end."

Unfortunately things are at lot worse than most people realize, probably a good thing I think. Was reading Euroblog the other day and it confirmed what my students have been saying for a while, Spain is in a real crisis.

Spain's Economy Peers Out Over The Precipice: The Abyss Lies Below

If it was just Spain it would be ok but  Warren Buffett said it best a few years ago when he called credit swaps (or what ever they are called) Weapons of Mass Destruction. Unfortunately it's becoming a self fulfilling prophecy. Our financial system is based solely on trust and that trust is quickly fading away.

My sister in law made a comment about her parents about being old school never throw anything away Germans and that if if ever came to war (or another great depression (on my Dad's side) she'd learn how to not throw food away too. Unfortunately I told we may just find out. Even though I read alot of doom and gloom blogs I tend to be dismissive of them ( ya know the great coming economic collapse written 20 years ago) but this time I am really quite worried. Its really touch and go if we will fall into another great depression. I personally think not, but it will be a long very deep and very nasty recession.

For American it will be regardless of who wins (but it will be Brack) higher taxes lower services higher inflation and much higher interest rates.

Spains Ecomony peers over edge

http://eurowatch.blogspot.com/2008/10/spains-economy-peers-out-over-precipice.html

This message was last edited by Rob in Madrid on 10/8/2008.

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My bet is not for blind optimism but for taking reality on and:

- Learn from errors
- Getting passionate about solving them
- Gathering the necessary knowledge and tools
- Invest energies, imagination, generosity and joy in the work


so things will be not that worse next time, 

to offer our  small but genuine contribution to the history

to  dignify oursleves in the process

Is not that better and more fun that watching a devastating spectacle and just think:

We should  have done this or that... we should have reacted in a different way.... there is nothing else to do but regretting and shocking our heads against the wall

Have you read this book?:

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It's good thing us humans are generally optimistic (me included) or we'd never survive as a species!

Interesting book, I will take a look at it.

Also reminds me of an old saying. A recession is when your neighbour loses their job, a depression is when you lose your job!

Anyways I really really have to run, I have lesson prep and running around to do and it's not getting done while I'm sitting here at the keyboard

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There are Mercedes listing at 66,000€ now NOT selling at 12,000€.  

Max, I'll take two. Could you post details, please.

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but!!! Wait!!! I've just see that our Gord is brining back Mandelson and Blunkett - so everything's all right then! 

BE WORRIED - BE VERY VERY WORRIED!!!

I BELIEVE THAT ALASTAIR CAMPBELL IS WAITING IN THE WINGS AS WELL!!! PHOTOGRAPHED WITH GORD LAST WEEK SOMEWHERE I BELIEVE!!!! SO DOES THAT MEAN A RETURN TO THE FOLD FOR PRESCOTT!!!! WHY NOT DIG UP WILSON AND CALLAGHAN AS WELL!!!!

ON A MORE SERIOUS NOTE (AS IF THAT WASNT SERIOUS ENOUGH) WHERE WILL WE BE IN 5 YEARS TIME WE ASK - I AM SURE NOBODY NEEDS REMINDING BUT VERY SIMILAR CIRCUMSTANCES LED TO THE RISE OF FASCISM THROUGHOUT EUROPE IN THE 30S AND ULTIMATELY LED US TO WW2. THE US CAPITALISING ON SUPPLYING ARMS HAS ALWAYS HELPED TO MOTIVATE THEIR ECONOMY. DESPERATE TIMES LEAD TO DESPERATE SOLUTIONS - FROM WHAT I GLEAN IN THE UK THERE APPEAR TO BE MORE OPINIONS SWINGING FURTHER TO THE RIGHT OF CENTRE AND NATIONALISTS SEEM TO BE GAINING IN POPULARITY. LET US ALL HOPE THAT THE "RECOVERY" WILL BE UPON US LONG BEFORE ANY SPECTRE OF EVIL HAS ANY OPPORTUNITY TO LOOM LARGE OVER EUROPE AGAIN.

This message was last edited by Smiley on 10/8/2008.

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Hi Smiley,
I have just returned from a break in the UK due to family illness and beleive it or not in this climate,work commitments.....
You are exactly right about the political feeling lurching towards the far right,i was absolutely amazed at the underlying feeling running through the country,just talking to a cross section of people always brings up the same arguments.
Although i watch the Spanish news and economic discussions i was never prepared for the sheer weight of doom and gloom that hits you from all angles when you are there,i thought i had been missing the TV but after a few days you run screeming from the tv shouting "enough about cisis,credit crunch,knife attacks,banks going under....etc...etc
The question i asked myself is are we shelterd from a lot of the bad press here or does it simply not get the coverage?
Are the banks suffering as much here? if you beleive what you hear in the UK,every high street bank will be owned by the Tax Payer soon and from general conversation there aren't that many tax payers for it to be shared amongst...
I know the weather gets you down in the Uk with a constant shade of John Major hanging over your head but i have honestly never seen a country in the midst of such an overwhelming depression.
I by know means endorse the fact but i could actually see the BNP gaining seats in the next election.
People talk about the Polish invasion and before my visit shrugged this off as an urban myth,in a block of 7 houses where my friend lives,6 are Polish...urban myth destroyed...stark reality.
I think because the UK has a credit society and Spain's natives didnt seem to fall for it so quickly i fear that the UK may suffer a far worse fate.
From My deals with the Spanish Banks and there new systems i know one thing if people could get credit to buy property here at the moment there would be a mini boom.
Some of the banks portfolios at the minute are taking prices back 5 years,thats why i have faith in a recovery here sooner rather than later.

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Hi Georgia - sorry to hear of the family illness and hope its nothing too serious. John Major grey - perfect description. Lets hope my fears are groundless but without doubt the extremists will be trying to offer their solution to the disenchanted and those who feel disenfranchised - you only have to look at France several years back and how quickly they swung to the extreme right and it was very very close - I am not sure the timing or the circumstances were exacty what Enoch Powell had in mind but I hope that "rivers of blood" does not become a literal truth.

Regarding the banks here I think they have problems of a very different nature. The Bank of Spain imposed rules on them that did not permit them to become exposed to the credit swaps and purchase of securitised debt from those banks that have landed other mighty financial institutions in the mire. Cant remember exactly when it happened but was some time ago and I am not sure that it was by judgment but possibly more by luck - I wouldnt mind betting that someone at the BOS looked at what investment banks were doing and simply didnt understand - as we know they have a fairly simple and straightforward attitude about things and I am sure the complexities of credit derivatives were simply beyond them - thus "too risky best we dont get involved". Who knows? They do however have their own problems with lack of due diligence in scrutinizing documents for mortgage applications, checking that purchase price is in line with LTV criteria for the mortgage advance, advancing imprudently to developers without running the appropriate checks to confirm the development was all fully legal etc. I imagine these problems will be nothing like those experienced by their UK counterparts but I think they have problems nonetheless. Interesting what you say about people not being able to get credit and having a mini boom. While things have without doubt tightened as long as clients meet criteria and the property meets criteria we are not having any problems at all. Of course if you have clients that would buy if they could get a self cert deal at 80% of value and no proof of income and 100 mortgages in the Uk they are having to support etc then I would agree that credit would be a problem. However as long as they meet criteria and have provable income and the property stacks up it should be no problem at all. Yes some have shut the door and yes they are all more stringent in documents required (then again its the sort of thing we have been doing for the last 5 years) in terms of verifying tax returns and employment history etc but then surely due diligence is the correct path to follow for any lender in any market - perhaps if they had followed that ethos around the world we would not be in the state we are in now. I think we would still have seen some problems as part of the normal cycle - I just dont think they would have been anything like as severe.  

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Hi Smiley,
Nothin too bad just my dotty 90 year old nan decided to come off her skateboard and shatter her hip,number one grandson(only one) has to be at the bedside as she annoys the hell out of everyone else.
Anyway back to the fray now and to be honest the banks are trying to shift property through the agents at last.
The problem we are having is that the banks are dead scared up here of lending to anyone,i know of one bank that has refused to lend to non residents!!!
They give you a great property at great price and expect a cash buyer to be hiding behind every cash machine.
I have 3 massive projects at the moment to work on hence i have been absent from here for a while.
As my Nan would say (and does every 5 minutes) "crisis what bloody crisis!!, they wanna try living through the blitz,eating cabbage and Spam with Hitler bombing the c***p out of us every night,no money they wa.......................................(i think you get the picture).
Like you say,i think the Spanish banks may have(more by ignorance than judgement) managed to stave off some of the burden although i think bad debt may yet still bite them in the proverbial...

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Bad debt is certainly of concern to them but not on an international scale - it is domestically where they will catch a cold. Those that have been lax and lent without due care are already looking over their shoulders.

Nice to see that there was a massive vote of confidence (NOT) from Wall Street and the FTSE to the coordinated cut in rates today. The Bears are out in force and seem to think that rate cuts, deposit guarantees and cash injections arent going to cure the problem.

There is more than one lender that will no longer advance to non residents and several of the non indigents have withdrawn from the market altogether. Dont panic Mr Mainwaring!!

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I'm no expert on this topic - but I think the stringent legisaltion on Spanish banks came about after Banesto went bust (1990?) and Santander (who else) came to the rescue. Banesto is now run by the daughter of the wily old git at the head of Santander.

I think you may be right that Spanish banks didn't get involved in complicated foreign markets because they didn't understand them. But, it should be remembered that Spaniards in general don't like to get too involved with anywhere outside the Spanish speaking world (check out the majority of offers in travel agent's windows), and whereas Spanish banks may not have immersed themselves in the US markets to the extent that other European countries did, they are heavily involved in Latin America. Will that involvement come back to bite them in the backside soon? Don't know.

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A cheap house from the Bank
Friday, October 10, 2008 @ 6:51 AM

To buy cheap houses from the Bank

They are now the owners-sellers of all those apartments they financed at such a high and impossible-to-pay interest rate

To buy a house from the Bank has the big one advantage that they are open to price reductions and negotiations.

In Madrid, the number of Public Auctions of Houses is 1005 so far this year. Highest number of the last 5 years.

Some banks that are selling properties: Banesto, BBVA, CAM, Caja Cantabria, Ibercaja, Unicaja, Caja España, Caja Murcia, Caja Granada, Caja de Castilla La Mancha, Caja Duero, Caixa Tarragona, Grupo Santander, Caja Sol o Caja de Extremadura. You can find their offers in their websites, showing surfaces, location, prices…

Additional payments to the price of the house would be: Notary deeds, Registration in the Land Registry, Local Increase Value Tax, Transfer Tax or VAT.

Properties are sold by the Bank with  existing legal, planning and registry conditions… Banks are not liable for any loan or encumbrance the apartment may have so.... it is important to have a legal advisor for the check of the legal status of the unit. These charges or legal issues can also be a way to negotiate the price down in your favour.

Banks usually have Real Estate agents to show the properties, in order to formalise the offer after the visit, Banks generally have a simple form that is generally available in their websites.

The properties that Banks are trying to sell come from two different ways:

1) Failed public auctions: if a property cannot be sold in public auction for more than the 70% of the market price, the Bank can keep it for the 50% of this.

2) Individuals who give flats to the Banks as payment for the remaining mortgage loan. Once the apartment is sold, Bank gives back to the consumer the part of the mortgage loan that he had already paid.

Well... it is good to know.

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Maria - The question for the banks is:  "who is going to buy property in a market that is in freefall?".  

IF I had money, then I would be looking at waiting for a good while yet until the markets bottom out, and would also be waiting for the banks to panic even more until they were effectively paying people to get properties off their hands.

See this:  http://uk.biz.yahoo.com/10102008/323/markets-tailspin-steps-pressure-world-action-crisis.html 

As an aside:

A friend from Manchester (someone has to live there!) told me that his son has been working and contributing all his life and now has nothing.  Can't get dole for 6 weeks, and that will stop in January.  

Regarding cheap cars - I'm on the case boys, and will mail you when I know actual facts.

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Hi Max,
Regarding the price drops you mentioned,before the banks started releasing property back to the wild i thought the same as you,if you are not buying predominantly as a home then hang in for a while.
I have now changed my mind after seeing some of the stock they are putting out!!!!!!!!!!!
Apartments back to 65.ooo€-75,000€ in decent locations, 300,000€ 3 bed  villas for 175,000€ and on and on.....
My professional advice to anyone thinking about it woith some cash is have a little snoop around,you may be suprised what you may find................

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Just returning briefly to the topic of where exactly your money is safe, and the thought that maybe property isn't such a bad idea when banks are collapsing all around us.......this from Money Morning:

........one thing I definitely wouldn't recommend is buying a second property.

That goes without saying, surely? But no, it seems that even amid the greatest financial crisis in a generation, the property pundits are still trying to stick their oar in for bricks and mortar. According to Anne Ashworth in The Times, some cash buyers have decided they'd rather stick their money into a dilapidated property and board it up for a few years than 'risk' it in a bank.

That's possibly the stupidest thing I've ever heard. Property is an extremely illiquid asset. It's also one of the most dependent on easy credit for its value. So if you buy property right now, no matter how cheap it looks, you are both losing control of when you can get your money back; and pretty much guaranteeing that your capital will depreciate as the market continues to weaken.

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The thing is witryh the bank foreclosures is that some of them are 50% below curerent prices,this is not the normal market and should be treated as an anomolie.
I think if you were considering buying a second home at normal prices well yes fair enough i wouldnt risk that either but if you can get in at a 50% in my opinion you will be pretty safe.

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Hi Georgia,

50% of what?  If you mean 50% of the property valuations made in January 2008, then 50% prices could still be very high.  Also, it depends where you are - there are parts of the Murcian coast that I can see going right down to the point of being worthless as there is a large percentage of buy-to-let properties which are not returning anything at the moment.

 

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Hi Max,
As i said 50% of current prices,everything has a price that it is selling at and then obviously a discount,if we dont have this system then comparables and list prices wouldn't exist.
If a rasher of  bacon is 1€ in the butchers window then if he advertises it at 50% off,do we think that is a good deal or walk past saying that it is still too expensive and will probably be worthless tommorrow?
Anyway picked up some worrying news on the Spanish banks today....
 

PHILIP FALCONE, the American hedge-fund manager who made a killing by betting against the shares of HBOS, now has the UK’s second-largest retail bank in his sights.

In the past week his hedge fund, Harbinger Capital, has built up a €208m (£165m) short position in Santander, the eurozone’s largest bank and owner of Abbey National, Alliance & Leicester (A&L) and Bradford & Bingley (B&B) in the UK.

While the shorting of financial shares is still temporarily banned in Britain, this is not the case in Spain. Falcone has made similar bets against BBVA and Banco Popular, Spain’s next two largest banks. He has built up short positions of €225m and €139.8m in those stocks respectively. Being targeted by one of the wiliest investors in the sector will worry investors, especially because shares in the companies have already dropped so much in value. Santander shares have shed a third of their value over the past year, while BBVA and Banco Popular have lost nearly half their value.

Falcone has done well by making the right calls before. According to the hedge-fund trade magazine Alpha, he pocketed $1.7 billion last year, making him one of the sector’s top-five earners.

Santander and its chairman, Emilio Botin, have been lionised for stepping in to save both A&L and B&B. Spanish banks have skated relatively unscathed through the credit crunch, but questions are being asked over whether that will last.

They are heavily exposed to Spain’s plummeting housing and construction markets. Unemployment in the country recently hit 11%. According to filings with Spain’s market regulator, Harbinger increased its bets against the banks on Thursday and again on Friday, when stocks around the world ended the worst trading week since the stock-market crash of 1987.

Falcone previously built a near-4% short position on HBOS and was vilified along with other short sellers for his perceived role in the shares’ nosedive that led to the government-brokered rescue deal with Lloyds TSB. Regulators in America and Europe, including Britain’s Financial Services Authority, have since imposed a temporary ban on short-selling on some financial stocks.

Short sellers borrow shares in a stock on the assumption that by the time they have to return them they will have fallen in value, and then pocket the difference.

Next week Falcone will be among five prominent hedge-fund managers who will testify before the US Congress about his business and any possible deleterious effects that it may have on financial stability.

Henry Waxman, chairman of the House Oversight and Government Reform committee, said in a letter to Falcone: “I ask that you be prepared to testify about whether hedge funds, including yours, pose systemic risks to the financial markets.”

Geroge Soros, John Paulson of Paulson & Co, Kenneth Griffin at Citadel Investment Group, and James Simons of Renaissance Technologies will also testify.

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Hi Max,
As i said 50% of current prices,everything has a price that it is selling at and then obviously a discount,if we dont have this system then comparables and list prices wouldn't exist.
If a rasher of  bacon is 1€ in the butchers window then if he advertises it at 50% off,do we think that is a good deal or walk past saying that it is still too expensive and will probably be worthless tommorrow?
Anyway picked up some worrying news on the Spanish banks today....
 

PHILIP FALCONE, the American hedge-fund manager who made a killing by betting against the shares of HBOS, now has the UK’s second-largest retail bank in his sights.

In the past week his hedge fund, Harbinger Capital, has built up a €208m (£165m) short position in Santander, the eurozone’s largest bank and owner of Abbey National, Alliance & Leicester (A&L) and Bradford & Bingley (B&B) in the UK.

While the shorting of financial shares is still temporarily banned in Britain, this is not the case in Spain. Falcone has made similar bets against BBVA and Banco Popular, Spain’s next two largest banks. He has built up short positions of €225m and €139.8m in those stocks respectively. Being targeted by one of the wiliest investors in the sector will worry investors, especially because shares in the companies have already dropped so much in value. Santander shares have shed a third of their value over the past year, while BBVA and Banco Popular have lost nearly half their value.

Falcone has done well by making the right calls before. According to the hedge-fund trade magazine Alpha, he pocketed $1.7 billion last year, making him one of the sector’s top-five earners.

Santander and its chairman, Emilio Botin, have been lionised for stepping in to save both A&L and B&B. Spanish banks have skated relatively unscathed through the credit crunch, but questions are being asked over whether that will last.

They are heavily exposed to Spain’s plummeting housing and construction markets. Unemployment in the country recently hit 11%. According to filings with Spain’s market regulator, Harbinger increased its bets against the banks on Thursday and again on Friday, when stocks around the world ended the worst trading week since the stock-market crash of 1987.

Falcone previously built a near-4% short position on HBOS and was vilified along with other short sellers for his perceived role in the shares’ nosedive that led to the government-brokered rescue deal with Lloyds TSB. Regulators in America and Europe, including Britain’s Financial Services Authority, have since imposed a temporary ban on short-selling on some financial stocks.

Short sellers borrow shares in a stock on the assumption that by the time they have to return them they will have fallen in value, and then pocket the difference.

Next week Falcone will be among five prominent hedge-fund managers who will testify before the US Congress about his business and any possible deleterious effects that it may have on financial stability.

Henry Waxman, chairman of the House Oversight and Government Reform committee, said in a letter to Falcone: “I ask that you be prepared to testify about whether hedge funds, including yours, pose systemic risks to the financial markets.”

Geroge Soros, John Paulson of Paulson & Co, Kenneth Griffin at Citadel Investment Group, and James Simons of Renaissance Technologies will also testify.

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