Spanish construction rebuilds after market collapse

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Euro suffers worst month against the pound since financial crisis

Political risks are still all the rage in the currency markets. The euro has suffered its worst slump against the pound since 2009 in November, as investors hone in on a series of looming battles between eurosceptic populists and establishment parties at the ballot box. The single currency has shed 4.5 per cent against sterling […]

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Carney: UK is ‘investment banker for Europe’

The governor of the Bank of England has repeated his calls for a “smooth and orderly” UK exit from the EU, saying that a transition out of the bloc will happen, it was just a case of “when and how”. Responding to the BoE’s latest bank stress tests, where lenders overall emerged with more resilient […]

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Categorized | Economy

Scepticism greets Spain’s plans for banks

Posted on April 30, 2012

The Spanish government’s reappraisal of plans to establish a state-organised vehicle to hive off troubled bank assets has been met with scepticism from analysts as Madrid faced a fresh credit rating downgrade of its lenders.

Standard & Poor’s, the US rating agency which last week cut Spain’s sovereign credit rating, on Monday downgraded 11 of the country’s largest banks, placing Madrid’s struggle with how it will clean up the sector under further scrutiny as economists argue an additional €100bn could be required.

    Mariano Rajoy’s government, after floating and then scrapping the idea of a so-called “bad bank” when first elected, has begun again to discuss the possibility of placing problematic property loans into one or more specialised asset management companies, officials have said.

    While no further details have emerged of the structure of such a troubled asset fund, officials have been at pains to stress that the term “bad bank” is a misnomer, as no state money would be used like in other examples seen in Europe.

    Analysts, however, have been quick to point out that any scheme that did not use additional capital, either from the Spanish state or from international sources, would struggle to achieve its goal of clearing vast inventories of bad property assets from bank balance sheets.

    This is because, while Ireland’s NAMA used state money to take assets from banks at a discount, a Spanish equivalent which did not use state money would struggle to enforce the writedowns required – as to do so would risk forcing the weakest lenders into needing vast amounts of additional capital.

    “If the idea is to avoid the ignominy of an IMF bailout, then without an alternative funding source this is pure fantasy,” said James Ferguson of Westhouse Securities. “The proposal seems to illustrate just how absent of ideas the Spanish authorities have become.”

    Gary Jenkins of Swordfish Research noted that funding any bad bank-style entity, and valuing the assets transferred to it from lenders, would be challenging.

    Madrid remains insistent that no international bailout of its banks will be needed, and that banks would only be allowed to place bad assets into a separate state vehicle if they had already set aside provisions for them, and had their values independently verified.

    While aggressive writedowns of assets would be unlikely, a possible benefit of the scheme, officials say, is that banks would be relieved of the pressure of selling the homes they have repossessed and could instead refocus on lending to small and medium businesses.

    The reappraisal of a bad asset scheme for banks follows a warning from the International Monetary Fund last week over the risks that some Spanish banks still posed to the country’s financial stability, with the fund singling out Bankia, the largest lender to receive state aid, as the biggest problem in the sector.

    The IMF also recommended that some form of separate state-backed vehicle should be created to split away bad assets and allow banks to begin lending again into a credit-starved economy.