Currencies

China capital curbs reflect buyer’s remorse over market reforms

Last year the reformist head of China’s central bank convinced his Communist party bosses to give market forces a bigger say in setting the renminbi’s daily “reference rate” against the US dollar. In return, Zhou Xiaochuan assured his more conservative party colleagues that the redback would finally secure coveted recognition as an official reserve currency […]

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Capital Markets

Mnuchin expected to be Trump’s Treasury secretary

Donald Trump has chosen Steven Mnuchin as his Treasury secretary, US media outlets reported on Tuesday, positioning the former Goldman Sachs banker to be the latest Wall Street veteran to receive a top administration post. Mr Mnuchin chairs both Dune Capital Management and Dune Entertainment Partners and has been a longtime business associate of Mr […]

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Banks

Financial system more vulnerable after Trump victory, says BoE

The US election outcome has “reinforced existing vulnerabilities” in the financial system, the Bank of England has warned, adding that the outlook for financial stability in the UK remains challenging. The BoE said on Wednesday that vulnerabilities that were already considered “elevated” have worsened since its last report on financial stability in July, in the […]

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Currencies

China stock market unfazed by falling renminbi

China’s renminbi slump has companies and individuals alike scrambling to move capital overseas, but it has not damped the enthusiasm of China’s equity investors. The Shanghai Composite, which tracks stocks on the mainland’s biggest exchange, has been gradually rising since May. That is the opposite of what happened in August 2015 after China’s surprise renminbi […]

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Financial

Hard-hit online lender CAN Capital makes executive changes

The biggest online lender to small businesses in the US has pulled down the shutters and put its top managers on a leave of absence, in the latest blow to an industry grappling with mounting fears over credit quality. Atlanta-based CAN Capital said on Tuesday that it had replaced a trio of senior executives, after […]

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Archive | November, 2016

Financial services groups cut 9,000 jobs

Posted on 30 September 2012 by

The financial services sector has cut 9,000 jobs over the past three months as business volumes and profitability fell for the first time in more than three years, the CBI employers’ group and PwC have reported.

The job cuts were deepest in banking, which has been beset by
a scandal over the Libor benchmark interest rate and a slowdown in investment banking revenues.

    The findings, from a survey of 104 companies, contrast with signs that the economy may be returning to growth.

    Financial services groups think growth in business volumes will resume in the next quarter, according to the CBI/PwC survey but they also expect to cut 3,000 more jobs.

    The uncertain employment outlook was reinforced by Morgan McKinley, a City recruiter, which said new vacancies in the London financial market fell 19 per cent last month compared with August and 43 per cent compared with a year ago.

    Hakan Enver, operations director, warned that the strain on banks might lead them to delay recruiting decisions until the new year.

    Matthew Fell, CBI director for competitive markets, said the financial services sector had faced a tough quarter, with sales volumes unexpectedly falling and average costs rising, thus denting profits. Sentiment about the business situation also continued to fall.

    Nevertheless, he said, companies expected the weakness in activity to be temporary and predicted a return to growth in business volumes and incomes in the next quarter.

    Mr Fell added: “Uncertainty about demand, heightened by the need to fully resolve the ongoing eurozone crisis, and the looming US fiscal cliff, means that firms are scaling back their investment intentions for the coming year and reducing headcount.”

    Business volumes fell in banking, general insurance and securities trading but rose in life insurance, building societies and investment management.

    Kevin Burrowes, UK banking leader at PwC, said: “The outlook for banking is dominated by concern about weak demand, seen as the greatest threat to growth and the leading barrier to investment, and the growing costs of regulation.”

    The Centre for Economics and Business Research, a forecaster, expects the City to have lost more than 30,000 jobs this year, taking the total below 255,000 – the lowest level since 1996.

    That means the City will have lost about 100,000 jobs, or more than a quarter, since its workforce peaked at 354,000 in 2007, before the financial crisis.

    Across the country, the financial services sector employs 1.14m people and contributes 9 per cent to economic output.

    Astbury Marsden, another City recruiter, put last month’s dip in vacancies at 15 per cent after a relatively stable summer.

    “The last quarter has seen two of the UK’s most successful banks put in the stocks, the widening of the Libor scandal and announcements by a number of banks to continue to scale down their investment banking operations. It has proved to be an unexpectedly bad summer for bankers,” said Mark Cameron, chief operating officer.

    “Politicians, regulators and other government agencies here and in New York now need to be careful not to cause the sector unnecessary collateral damage.”

    Eurozone crisis hits advertising spending

    Posted on 30 September 2012 by

    Centerbridge Partners

    Global advertising spending is slowing in response to a eurozone crisis that has cut billions from marketing budgets in the hardest-hit countries and started to affect brands’ confidence in other regions, according to a new forecast.

    ZenithOptimedia has cut its forecast for global advertising growth this year to 3.8 per cent, compared with its June forecast of 4.3 per cent and its expectation last July that the quadrennial boost of the Olympic Games and the US election would drive growth of 5.9 per cent.

      The Publicis-owned media services agency has also cut its forecast for 2013, from 5.3 per cent growth to 4.6 per cent, and for 2014, when it predicts growth of 5.2 per cent rather than 6.1 per cent.

      “The clear change is the further deterioration of the eurozone,” said Jonathan Barnard, ZenithOptimedia’s head of forecasting. “Advertisers have taken a fairly hard look at their budgets and decided they were planning to spend too much this year. They have cut back but they are also projecting lower growth in the next couple of years.”

      Advertising spending across the eurozone is expected to fall 3.1 per cent, despite modest 1.1 per cent growth in the large German market.

      Greece could suffer a 33 per cent drop, with Spain and Portugal each down 12-13 per cent, ZenithOptimedia predicts.

      By the end of the year, the Greek advertising market will be 63 per cent, or €2.3bn, below its 2007 peak and Spain will be 39 per cent, or €4bn, down from pre-crisis levels, Mr Barnard said. Few markets have ever seen such sharp drops, other than Russia and Argentina in past financial crises. Advertising agency groups reported a slowdown in the second quarter of the year, when Nielsen said last week global advertising spending had risen by just 2.4 per cent year on year.

      Budgets in Europe contracted by 3.8 per cent in the quarter, Nielsen estimated. The eurozone crisis is likely to accentuate advertisers’ focus on emerging markets, which ZenithOptimedia estimates will contribute 59 per cent of all the growth in advertising spending between 2011 and 2014.

      Latin America, where growth dipped from 10.5 per cent to 7.7 per cent this year, should return to double-digit growth rates in 2013, it predicts, and central and eastern European markets should rebound from 1.8 per cent to 7.4 per cent growth. One exception is the Middle East and North Africa, where unrest after the Arab spring has made marketers nervous.

      The new forecast confirms the growing importance of internet advertising, which is set to rise from 16 per cent of global spending in 2011 to 21.4 per cent in 2014.

      But it also underscores the primacy of television, which drew a record 40.4 per cent of advertising spending in 2012.

      Global ETF sector in line for record year

      Posted on 30 September 2012 by

      Investors are on course to put a record amount of money into exchange-traded funds this year after the investment vehicles attracted their third-highest monthly inflows on record in September.

      Net new global inflows into ETFs and associated products reached $43.3bn in September, the highest since December 2008, according to data from BlackRock, the world’s largest money manager.

        The announcement of fresh asset purchasing measures by central banks in the US, Europe and Japan early in September boosted risk appetite with investors turning to ETFs to invest quickly across a wide range of asset classes.

        ETFs have gathered $182.6bn so far in 2012, up 42 per cent on the same period last year and already surpassing 2011’s full year total of $173.4bn.

        ETF inflows often strengthen in the fourth quarter and some industry executives are predicting that inflows this year will beat 2008’s record of $259.7bn.

        “September was an exceptionally strong month for the global ETF industry as additional monetary easing by major central banks served as a catalyst for investors to move into risk assets,” said Dodd Kittsley, global head of ETP research at BlackRock.

        Mr Kittsley said September’s news of fresh stimulus measures by the three central banks had encouraged more ETF inflows than the previous round of quantitative easing announced by the US Federal Reserve in November 2010.

        US equity ETFs attracted $23.4bn in September, more than half of the industry’s global inflows, helped by the Federal Reserve’s promise to buy more mortgage backed securities as part of a third round of quantitative easing.

        The European Central Bank’s announcement of plans to expand its bond buying programme sparked a recovery for interest in pan-European equity ETFs which gathered inflows of $3.1bn last month, the highest since October 2008.

        Fixed-income ETFs, said Mr Kittsley, had also shown evidence of investors adopting a more positive attitude to risk. While $2.2bn was withdrawn from US government bond linked ETFs, investors committed $3.7bn to investment grade corporate bond and high yield ETFs last month.

        The gold market has also rallied since the Fed announced QE3 with exchange trade gold products gathering inflows of $3.8bn last month. Concerns about the outlook for the euro have also led to growing interest in gold from European investors who have contributed almost half – $4.9bn – of this year’s total inflows of $10.7bn into gold ETPs.

        US managers are competing in an ETF price war to win a share of cash flowing into the industry. Charles Schwab, the US financial services company, last month cut fees across its entire ETF range, stealing the title of lowest cost from Vanguard.

        BlackRock, the world’s largest ETF manager, is expected to announce fee cuts for some of its iShares ETFs provider before the end of the year to respond to price competition from Vanguard.

        Castle Trust eyes cash-strapped homebuyers

        Posted on 30 September 2012 by

        The former head of the City watchdog is to chair a new company that offers cash-strapped homebuyers interest-free loans in return for a big slice of any future house sale profits.

        Sir Callum McCarthy, former chairman of the Financial Services Authority, is backing Castle Trust which is offering controversial shared equity mortgages, products that have been snubbed by the big high street lenders and met with muted reception from advisers.

          Castle Trust, which has received $65m of equity investment from buyout firm JC Flowers, will offer 20 per cent of the value of a property on interest free terms in return for a 40 per cent slice of any increase in its value.

          Homebuyers will have to have a 20 per cent deposit and borrow the remaining 60 per cent of the property value from a participating mortgage lender.

          At the time of the launch, none of the big high street banks have signed up to the scheme, restricting the mortgage options for those taking out a partnership loan from Castle Trust.

          Advisers warned that the scheme could bring back memories of the shared appreciation mortgages that were offered by Barclays and Bank of Scotland in the mid-1990s. Borrowers were offered an interest-free equity loan of 25 per cent for 75 per cent of the gain in the property’s value, but many homeowners were caught out by the rapid appreciation in house prices that meant many were unable to move and buy a bigger home as most of the equity belonged to the lender.

          Sir Callum, who presided at the FSA in the run up to the financial crisis before leaving in September 2008, said there were fundamental differences to these earlier shared equity schemes, which he claimed were “badly designed and poorly distributed”.

          “We are very careful to whom we will provide the partnership mortgage to. We won’t offer it to somebody over the age of 55, while previous products were offered to people who were clearly too late in their life cycle,” he said. Castle Trust will also share in 20 per cent of any fall in the property’s value, and the scheme will only be offered on an advised basis.

          But many advisers said they were sceptical of the scheme. “The product isn’t straightforward. There’s a degree of flexibility people would lose and I’m not convinced they will get the best interest rates from lenders taking part in the scheme,” said Patrick Connolly of AWD Chase de Vere.

          Ray Boulger of mortgage broker John Charcol said the product was innovative but borrowers need to understand the risks. The scheme could be a good deal for buyers if house prices go up slowly, remain flat or fall slightly, but if prices rise rapidly, it would prove costly.

          Powa in card reader deal with SA bank

          Posted on 30 September 2012 by

          A British challenger to Square, the system that enables credit card payments with a smartphone, has signed its first large multimillion pound deal with one of South Africa’s biggest banks.

          First National Bank, the retail and corporate division of First Rand, one of the country’s big four banks, will use Powa Technologies’ card reader and software to replace its existing payment infrastructure for an annual fee.

            While Square, created by Twitter founder Jack Dorsey and valued at $3.25bn, sells to small traders new to using cards, Powa’s product, called mPowa, targets existing users through banks and retailers.

            Dan Wagner, chief executive of Powa, said banks and mobile telephone companies were looking for a way to allow mobile payments while retaining control.

            His system, which unlike Square works with cards that use a Chip and PIN, is compliant with Level One PCI, the highest security standard.

            “I take the view that Visa and MasterCard are not going away,” he said. “Google will not be my provider of credit.”

            “We are a white label solution. Square is a closed system, we are Android,” he added, referring to the ability of anyone to write software for the operating system created by Google.

            Mr Wagner, a technology entrepreneur who has spent around £8m of his own money developing the product, said it was negotiating with 15 brands, including at least one British bank. Powa already runs ecommerce websites for many stores.

            He has already attracted the ire of Square, whose lawyers in June sent a letter asking him to stop using an image of a hand holding the card reader similar to Square’s publicity shot.

            As well as a dongle that plugs into a phone, he produces a chip reader that connects via Bluetooth to send a receipt by text or email to the cardholder’s phone.

            Users enter their pin as with existing systems. Mr Wagner said it could be used by those with mobile sales forces, such as the AA or Avon, the cosmetics company.

            Informa, the business information group, uses mPowa to take payment at trade shows.

            In September, Square closed a $200m fundraising and takes $8bn of payments annually.

            A 0.25 per cent fee per transaction is levied by mPowa on top of what the card services provider charges, usually around 2.5 per cent.

            FNB operates in six southern African countries and is about to enter Angola, Ghana and Nigeria. The company, which had sales in 2011 of R25.8bn and 7.1m customers in South Africa, declined to comment.

            KKR branches out with Acteon

            Posted on 30 September 2012 by

            First Reserve, the energy-focused private equity group, said it had sold its stake in oil services company Acteon Group to US buyout group KKR, in a deal that values Acteon’s equity and debt at £800m-£900m.

            The move marks KKR’s first investment in the fast-growing oilfield services sector.

              “As exploration and production shifts into more complex environments, like deepwater offshore, the oil and gas industry will increasingly need more third-party expertise and specialised services,” said Josselin de Roquemaurel, who leads KKR’s energy group in Europe.

              Acteon Group, based in Norwich, occupies a lucrative niche in the offshore oil industry, providing subsea engineering products and services. It specialises in equipment that connects drilling rigs to oil wells, such as risers and flow lines, and also installs foundations for offshore oil production platforms, often in extremely deep water. It has recently moved into installing offshore wind turbines.

              The company is active in the North Sea, west Africa, Brazil and the Asia-Pacific region.

              First Reserve bought a 52 per cent stake in Acteon in 2006 for £70m. A person with knowledge of the deal with KKR said the enterprise value of the whole company was less than £200m in 2006 and is now £800m-£900m. First Reserve and KKR declined to comment on the value of the deal.

              Will Honeybourne, a managing director at First Reserve, said that since it made its initial investment, Acteon had “quadrupled its operating profit, expanded its geographical footprint and service offering and grown the number of its employees from 650 to over 1,900”. “It’s a continuing growth story,” he said.

              Acteon’s expertise in deepwater has translated into strong demand for its services at a time when the oil industry is venturing further and further offshore and drilling ever deeper into the seabed, particularly in places like Brazil’s “pre-salt” fields. “Over the past five years, a third of the oil discovered in the world was in offshore Brazil,” Mr Honeybourne said.

              The sale of the Acteon stake continues a recent European trend of private equity firms selling companies to each other in so-called secondary deals. In July, Hellman & Friedman bought a majority stake in Wood Mackenzie from Charterhouse Capital Partners in a deal that valued the energy consultancy at £1.1bn.

              Energy has in recent months become a big focus of acquisitions by private equity firms. In February, Apollo Global Management, a US-listed group, paid $7.15bn for parts of El Paso, an energy producer, just months after KKR led a $7.2bn buyout of Samson, a US oil and gas explorer.

              Deutsche Bank faces $37m damages lawsuit

              Posted on 30 September 2012 by

              Deutsche Bank©Bloomberg

              A Puerto Rico-based investor is claiming more than $37m in damages from Deutsche Bank for allegedly dumping “toxic or distressed” loans and derivatives into a structured product that it sold before the onset of the financial crisis.

              Arco Capital filed a lawsuit last week at the Southern District Court in New York in which it claims Germany’s largest lender by assets used the $1bn transaction “as a repository for poorly-underwritten, toxic or distressed lending assets”.

                Deutsche Bank said: “We believe these allegations are without merit and will defend against them vigorously.”

                The damage claim adds to a series of lawsuits filed against the world’s largest investment banks including Deutsche over complex investment products that turned sour since the start of the financial crisis.

                Most of these claims are related to US mortgage-backed securities, and this is the first litigation against Deutsche over a corporate loan portfolio.

                Arco Capital, a commercial, infrastructure and real estate investor, accuses Deutsche Bank of fraud and breach of contract over an instrument issued in 2006 that bundled interest payments and default risks for loans granted by the German lender to emerging market companies.

                Deutsche Bank issued this synthetic collateralised loan obligation to reduce the amount of capital it needs to hold on its balance sheet against the underlying loans, according to the lawsuit.

                In January 2007, Deutsche Bank doubled the original size to $1bn. “Deutsche Bank took advantage of the upsize to dump ineligible lending transactions into the reference portfolio, and used its control over the transaction to disguise its misconduct and frustrate the protections that existed for noteholders,” the court filing states.

                It adds that Deutsche Bank henceforth included “poorly underwritten” and “highly risky” loans and changed the definition of reference obligations so that a broad range of derivatives such as interest rate and currency swaps could be added as well.

                A series of loans and derivatives that were added defaulted in the next few years, taking the ultimate loss rate of the financial instrument to 14.28 per cent instead of the 0.85 per cent rate that Deutsche Bank estimated when it first marketed the product to investors, the lawsuit claims.

                Several of the companies that defaulted were Hong Kong-based groups that were later accused by their insolvency administrators and liquidators of accounting breaches or fraud.

                Another company that defaulted on an instrument designed to protect it against interest rate changes has sued Deutsche Bank for selling an unsuitable product, the filing says.

                Arco claims that by including such derivatives and risky loans Deutsche Bank defrauded the CLO’s noteholders. It says it lost in excess of $37m as a result.

                “Between 2007 and the end of the transaction on July 2012, Deutsche Bank wrongfully obtained more than $86m in credit event payments to which it was not entitled,” the lawsuit claims.

                Earlier this year, a fraud claim by Germany’s HSH Nordbank against UBS over a collateralised debt obligation was dismissed by New York’s Supreme Court in what was seen by lawyers as having broader implications for investors seeking damages for losses incurred in the financial crisis.

                TPG co-founder warns on returns

                Posted on 30 September 2012 by

                David Bonderman, founding partner Texas Pacific Group speaks at the IATA meeting in Paris, France©Bloomberg

                David Bonderman, co-founder of TPG

                The co-founder of US private equity group
                TPG has warned that if stock markets do not improve, investors in buyout groups will have to accept lower returns.

                Historically private equity groups have promised investors that they themselves will only take a cut of the profits from their investments if they achieve a minimum 8 per cent return.

                  For most of its short history, the best buyout groups have had no trouble delivering. But now the industry is struggling with low returns and that 8 per cent has become a more elusive target.

                  “If we continue to have zero interest rates, that 8 per cent hurdle should go,” David Bonderman, co-founder of TPG said on the sidelines of a conference in Hong Kong.

                  “If the public markets don’t perform better, the benchmarks will have to change and people will have to adjust their expectations on returns.”

                  Like many other big buyout groups, TPG is trying to raise a new Asia fund at a time when investors have become sceptical about the ability of private equity to deliver big returns in the face of ailing public stock markets. The group had hoped to raise $4bn-$5bn for its latest Asian fund, but is stuck at about $1bn, according to investors.

                  Meanwhile, in most Asian markets public market valuations have declined 25 per cent in the past two years while in Shanghai, the stock market is at the levels of 10 years ago.

                  “Returns are trapped by history,” Mr Bonderman added. “When public markets returned 12 per cent and Treasury rates were 600 to 700 basis points higher, private equity returns of 20 per cent made sense.”

                  That message will not go down well with investors who expect strong double-digit returns in return for giving the big investment groups their money for 10 years.

                  In addition, investors, which include public pension funds, sovereign wealth funds and wealthy families allow the buyout groups to take 20 per cent of the upside as well as generous management fees that pay for the opulent lifestyles of founders such as Mr Bonderman.

                  Mr Bonderman is now planning a 70th birthday party in Las Vegas, following one 10 years ago in which the Rolling Stones entertained his guests.

                  While private equity groups promise their investors absolute returns, they depend on robust stock markets as the easiest way to cash out when they want to sell their companies.

                  When the IPO market shuts down, it becomes much harder to return money to investors, which then means it becomes harder for investors to write cheques for new funds.

                  However, easy money has provided a big boost to the private equity firms enabling them to refinance the debt of their over-levered companies.

                  In August, for example, KKR and TPG were able to refinance the debt of their troubled Texas utility, Energy Future Holdings even as TPG marked down the value of its equity to 10 cents on the dollar, according to its most recent letter to investors.

                  Financial services – the blame game

                  Posted on 30 September 2012 by

                    The rotters. UK motor insurers, it seems, have been keeping premiums high by using overly expensive repair shops and more hire cars than necessary. The Office of Fair Trading has decided that the situation merits a full-scale investigation by the Competition Commission. Such murky conduct comes on the back of other misdemeanours by the financial services industry, from mis-selling loan payment insurance to persuading shopkeepers to buy complex derivatives. No wonder confidence in the sector is not high.

                    It is not only Brits that do not trust the industry. According to CEB, an advisory firm, half of global consumers also have little or no confidence in financial providers. Sales are depressed, too. According to the Investment Company Institute of the US, net global sales of mutual funds, were $100bn in 2011 against $1.5tn in 2007. In insurance, data from Swiss Re show that global premiums fell in 2011 after growing between 3-4 per cent during most of the 2000s.

                    Market conditions are partly to blame. Lousy equity markets are not the best backdrop for mutual funds, while austerity is crimping appetite for many financial products. But financial services companies should also look closer to home. Consumer confidence in the industry is lowest, says CEB, when it comes to its ability to offer “clear and simple policies and fees”. That is not surprising given the obsession that financial services companies have with jargon. High charges and poor performance add to the mistrust.

                    The industry has huge market opportunities worldwide. In developed markets, ageing populations need to fund their retirement. In emerging markets, people are just starting to get to grips with insurance and investment. If the companies cannot find a way to profit without ripping off their customers, they have only themselves to blame.

                    Email the Lex team in confidence at lex@ft.com

                    Spain stress tests fail to dispel clouds

                    Posted on 30 September 2012 by

                    Bankia©Reuters

                    Is it enough? That was the question on the lips of Spanish bank watchers over the weekend, following news on Friday that the sector would need as much as €59.3bn of new capital.

                    A detailed examination of the loan books of 14 banks showed that seven did not have enough capital. The biggest shortfalls were at Bankia, the agglomeration of former savings banks whose problems triggered this year’s nervousness across the banking sector, which was deemed to need nearly €25bn, up from the €19bn capital gap identified only a few months ago. But Banco Popular, another listed bank that is Spain’s sixth biggest lender, was told it would need to raise €3.2bn of fresh capital. While Bankia’s money was always going to have to come from European rescue funds, Popular insisted on Friday that it would raise its capital needs under its own steam.

                      Spain capital needs graphicClick to enlarge

                      Madrid hopes the detailed “bottom-up” review of 115,000 loans, conducted by Oliver Wyman with close international supervision from authorities including the International Monetary Fund and the European Central Bank, will dispel investor doubts over the true extent of losses in the sector. Overall, the total shortfall drops to €53.7bn after including deferred tax assets and ongoing mergers, according to the report.

                      Some Spanish bankers have been critical of the process, none more so than Angel Ron, executive chairman of Banco Popular, the largest non-nationalised lender to fail the test, attacking the process for “weakening” banks and adding “confusion”.

                      “It is like taking a very aggressive medicine before having the disease,” Mr Ron said before the results were released. Immediately after results showed the bank had a €3.2bn capital shortfall under an “adverse” scenario, it said it would not need any state aid.

                      Analysts however argue that with the bank having suffered a sharp fall in its share price, and the equity capital markets all but closed to most lenders, it will be a gruelling process for Banco Popular to sell new shares, and possibly highly dilutive for existing investors.

                      The majority of Spanish bankers have been generally supportive of the stress tests, arguing that their rigour and the level of international supervision marked a decisive step in restoring international confidence in the country’s financial sector. “These are the most demanding tests ever in Europe,” said Francisco González, executive chairman of BBVA, Spain’s second largest bank by assets. “It is a very important step to restore confidence in the Spanish financial system”.There remains some scepticism, however. Analysts at Nomura, for example, question why the stress scenarios for property market slump is a third less extreme than in Ireland.

                      Those involved in the tests argue that Spain’s crisis is more advanced than it was in Ireland when an equivalent process took place there two years ago, meaning that more of the drop in property values is already baked into asset prices.

                      About 11 per cent of the total credit assets of the 14 institutions were individually examined by Oliver Wyman and the Big Four auditors, with about 30 per cent of the €300bn of developer loans owned by Spanish banks scrutinised.

                      This saw 115,000 individual loans picked at random and individually examined by a team of 450 auditors over three months, or about three loans per auditor each day.

                      In several cases loans were made to the same client, people involved in the tests said, meaning that the workload would have been reduced.

                      Despite the depth of analysis on the loan book, critics also attacked the narrow focus of the exercise, echoing criticisms of last year’s Europe-wide stress test of eurozone sovereign debt, which failed to extrapolate the risk of a sovereign default to other related risks such as funding costs.

                      In the Spanish test, one area of similar omission was banks’ equity stakes in other companies. While it was already known that the process would not focus on this area, analysts and investors question the wisdom of such a blinkered approach.

                      La Caixa, the Catalan savings bank listed as Caixabank, controls large chunks of the utility Gas Natural, the oil company Repsol and smaller stakes in Telefonica and other companies, with the dividends from these holdings representing an important part of its cash flow.

                      “This is completely inconsistent, because one of the components of the adverse macro scenario is a higher than 50 per cent fall in the stock market in Spain,” said one fund manager. “How on earth would you avoid taking provisions on your equity portfolio?”.

                      Investors will be watching closely to see how the Spanish authorities and the banks with shortfalls manage the recapitalisation process in collaboration with their European partners. But with scepticism already widespread, analysts see little chance of a swift dispersion of the clouds hanging over Spain’s banks.