Spain in focus - May 20 , 2012 - bank runs looming , bailout / recap of banks by Europe looming , budget deficit rising , margin hike coming - no matter where you look , the news is grim for Spain !

http://soberlook.com/2012/05/run-on-banks-in-spain-is-very-real.html

Run on banks in Spain is very real

As Spain's banking sector continues to deteriorate, rumors are beginning to spread of a possible run on banks with depositors withdrawing some billion euros from a single bank.

The Telegraph: - The man's voice was scarcely a whisper, but the urgency in his tone was unmistakable.

"Will my money be safe here?" asked the customer, leaning over the counter in a central Madrid office of troubled bank Bankia. The weary-looking cashier nodded. "Things are better now," he said quietly.

As Spain reels from a week of plunging stock markets and eurozone nightmares, everyone in the country – and beyond – will be hoping that the cashier was right.

On May 9 the government took over Bankia, the country's fourth-largest lender, in an attempt to dispel concerns over the bank's ability to deal with losses related to the 2008 property crash. Bankia is itself a clumsy conglomeration of banks with serious exposure to bad property debt.

Don't worry sir, your money is perfectly safe at Bankia. Because "things are better now" that the Spanish government has taken the bank over. And there is no liquidity problem with the nation's banking system because Mr. Fernandez de Mesa said so.

The Telegraph (a different article): - "Spanish banks have plenty of liquidity. They've been funded for the next two years through the central bank so there's no problem of liquidity at all in Spain," Mr Fernandez de Mesa told the BBC this morning.

"We have had two LTR's from the European Central Bank so they are funded for the next two years."

He said the recent fears around the health of the country's banks were linked to their exposure to the property market.

Moody's last night cut the ratings of 16 Spanish banks, citing the reduced ability of the Spanish government to provide support to the sector, as well as the "adverse operating conditions" characterised by a renewed recession.

Mr. Fernandez de Mesa is right. The ECB's LTRO is keeping Spain's banks on life support. But as deposits flee, these banks have no other source of funding. Make no mistake about it - the Spanish banking system is in the middle of the largest run on banks it has experienced in recent times. The process may not look like the old pictures of hundreds of people lining up outside a bank branch to collect their cash (as the Great Depression era photo above shows). With electronic transfers across the Eurozone, they don't have to stand in line. Even if the politicians and the bureaucrats lie about this issue, the numbers don't. Here is what Spain's run on banks actually looks like:

and....

http://news.ninemsn.com.au/article.aspx?id=8470363

Spanish Prime Minister Mariano Rajoy says he does not believe that Spain's banks will need rescuing by Europe.

"I don't think so," Rajoy told journalists on Saturday after arriving in Chicago to take part in a two-day NATO summit, expressing surprise after French President Francois Hollande said he was in favour of a European mechanism to support the recapitalisation of Spanish banks.

"I don't really know if Mr Hollande said that, because if he said it must be because Mr Hollande has information that we don't have," he added.

Hollande said on Friday it would be "desirable" for there to be a recapitalisation of the Spanish banks.

On Thursday Moody's cut the debt ratings of 16 Spanish banks by one to three notches, citing the effects of the recession and the Spanish government's own reduced creditworthiness.

The leading bank, Santander, and the number two, BBVA, were both hit with three-notch downgrades from Aa3 previously to A3, which for Moody's is an upper-medium credit grade, with still low credit risk.

Two other large banks, Banesto and CaixaBank, were also cut to A3.

and...

http://www.irishtimes.com/newspaper/finance/2012/0519/1224316358056.html

SPANISH BANKS’ bad loans rose in March to their highest in 18 years, underscoring the problems facing the government as it drafts in independent auditors in an attempt to reassure investors it can clean up the sector.

The Bank of Spain said bad loans rose to 8.37 per cent of banks’ outstanding loans, the highest since August 1994 and up from 8.3 per cent in February, which was also revised higher.

The data was released before Spain names auditors on Monday to assess how bad the losses are likely to get, and how much cash banks will need to rebuild their balance sheets.

The audit will start with a one-month stress test followed by a deeper analysis of assets in the financial sector, deputy prime minister Soraya Saenz de Santamaria said.

Financial sources have said fund manager BlackRock and management consultancy Oliver Wyman would probably be named to conduct the deep audit. But a government source said six funds and management consultancies have placed bids for the work, while a different government source said BlackRock may have a conflict of interest.

The Bank of Spain figures, released hours after a mass bank downgrade by credit ratings agency Moody’s, showed losses from loans made in Spain’s housing bubble are still rising. The Moody’s move had been expected, however, and Spanish bank shares rebounded on Friday after a grim week. Shares in part-nationalised Bankia leapt by a quarter to cut recent losses.

Troubled banks, along with overspending in indebted regions, are the two biggest risks for Spains public finances. Investors believe Spain needs to address these two issues aggressively to avoid an Irish-style bailout. Banks expect bad loans to continue to rise this year as the economy contracts and the jobless rate remains painfully high at almost one in four of the workforce, the highest in the EU.

Against that backdrop, analysts estimate bad loans could rise to nearer 15 per cent of loans. – (Reuters)