Monday, November 18, 2013

Further Deterioration Of The Spanish Bank Balance Sheets

You might have heard a few days ago, that Spain wanted to exit the ESM program. You might have also heard that the European officials were "fully supportive" of the decision. So all what was missing was the new Banco de Espana data showing that the banks actually did not need another bail out. I have written a few months ago, that the Spanish bank balance sheets were actually in the process of deteriorating in relative terms. Today, the numbers for September were published.

What we are seeing is
a) in relative terms the deterioration is accelerating: the percentage of doubtful loans jumped from 12.2 percent to 12.8 percent of total loans in a single month. September is therefore by far the worst month for the Spanish banks and
b) in absolute terms we are almost back to pre bail out levels of November 2012 where doubtful loans reached an all time high of €186,7 billion (of a total €1.62 trillion in loans). Less than a year later we are back at €182,2 billion (of a total of €1.43 trillion). "Up" €25,1 billion from the post bail out low of €157,1 billion.

So, I would really love to know: 

a) why on earth does the Spanish government think it can pretend that the banks will not be needing another even bigger bail out (with significantly worse bank balance sheets today than at the worst time before the bail out)? And
 b) why would European officials be supportive of a decision which seems to be based on nothing more than hope?

My guess is that the Cyprus "rescue" is playing a front role in this new drama. The rules for bail outs have changed (raiding of the deposits) in a way that makes it impossible for Spain to accept the reality of the banks needing another bail out.

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