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Spain Reports 20%+ Unemployment, a Structural Problem That May Persist For Some Time
As I have warned ad nauseum, the problems in Europe are being signicantly underestimated. From CNBC: Spain Jobless Rate up to 20.09 Percent
Spain’s unemployment rate rose
to a 13-year high of 20.09 percent in the second quarter, the government
said Friday, as the job market lagged behind an economy that has barely
managed to break out of recession. Though the rate increased from 20.05 percent in the first three months of the year, the National Statistics Institute (external link)
said the number of people working actually increased. Still, the
overall unemployment rate rose to its highest level since 1997 because
of a large increase in the work force. Spain
crawled out of recession in the first quarter of this year after nearly
two years of economic contraction and has been a focus of concern in
recent months, as investors fretted that its bloated deficit and troubled banking sector could necessitate a Greek-style bailout. The
statistics institute said in Friday’s report that there are now 4.645
million unemployed people in Spain, more than half a million higher than
a year ago.
Proposed austerity measures on top of a collapsed bubble in the real
estate market and banks that are playing hide the sausage with NPAs are
not going to help the unemployment rate any. From our proprietary report
on Spain’s public finances, Spain public finances projections_033010 (click here to subscribe):
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 02:43 Spain economy hit by unemployment
The effects of the real estate bust from just 3 weeks ago, and a realistic query to the IMF!
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As a result, we feel that there is also over-optimism in regards to
the health of the Spanish banks – particularly those with heavy exposure
to the consumer and to real estate. We first sounded the alarm in
January of 2009 with BBVA, and the alarm over here keeps ringing.
Reference Reggie Middleton on the New Global Macro – the Forensic Analysis of a Spanish Bank, Tuesday, January 27th, 2009:
In Spain, BBVA, the second largest
domestic bank, could see a massive deterioration in its real estate and
consumer loan portfolio. The Spanish real estate sector is making a high
horsepower a U-turn after years of a massive housing bubble that has
burst – culminating in an unemployment rate that has risen to an
outrageous 13.4% level. The power skid is showing no signs of reaching
an inflection point, and we believe is only in the beginning throes of a
sharp downturn. In addition, the banks‘ other key growth areas
including Mexico, the U.S and South America are witnessing a slowdown in
economic activity, restricting BBVA’s growth prospectus amid the
current turbulent environment. With increasingly challenging economic
conditions in each of these economies, BBVA’s asset quality has
deteriorated sharply with non-performing loans rising to 36% of its
tangible equity without corresponding (equal) increase in provisions.
As the bank deals with these tough times ahead, we expect BBVA’s bottom
line growth to remain subdued due to a slower credit off-take and higher
provisions in the coming quarters.
Key Highlights
Sharp slowdown seen in Europe - According to
the European Commission forecasts, the European economy is expected to
contract 1.9% in 2009 with a modest recovery in 2010. Spain, in
particular, is expected to be one of the worst hit due to the humbling
of its housing sector which had, for several years, been a significant
contributor to the country’s economic growth. This will impact BBVA by
slowing down its credit and loan growth in addition to significantly
deteriorating the credit quality of its loan portfolio.
BBVA’s asset quality is set to deteriorate rapidly as Spain enters recession -
Problems in Spain are more pronounced than in most of its European
counterparts. The Spain’s budgetary deficit has already crossed the 3%
threshold limit set by the European Commission and is expected to cross
6% by 2009, only behind Ireland. The unemployment has reached a 12-year
high of 13.4% in November 2008, the highest in the Euro zone, while the
real estate sector bubble (particularly residential vacation homes
purchased by foreigners), the pillar of economic growth engine, has
burst. BBVA, with nearly 40% of its total loan exposure tied to real
estate & construction loans and individual loans in Spain could see
massive deterioration in its asset quality.
Besides Spain the bank has to deal with other challenging economies including Mexico and the U.S - In
3Q2008, U.S and Mexico contributed nearly 29% and 16% of total
revenues, respectively. The downturn in the U.S economy is showing no
signs of stabilization, with an unabated fall in housing prices and
frozen credit markets continuing to shatter consumer confidence.
Recession in the U.S has also led to a sharp slowdown in Mexico which is
highly dependent on US for exports and remittances. The slowdown in
both of BBVA’s key markets will not only impact the pace of BBVA’s
growth but also augment the risk profile for the bank as it now has to
deal with vagaries of these economies to navigate itself in these
turbulent times.
I reiterated the warning again back in January of 2010 with “The Spanish Inquisition is About to Begin…“:
Now, it is time to see if fundamentals return to the market. From Bloomberg: BBVA Fourth-Quarter Profit Plunges 94% to $44 Million on Asset Writedowns
Jan. 27 (Bloomberg) — Banco Bilbao Vizcaya
Argentaria SA said fourth-quarter profit slumped to 31 million euros
from 519 million euros a year earlier as the lender wrote down the value
of some assets. BBVA fell the most in eight months in Madrid trading
after saying net income
fell to 31 million euros ($43.6 million) from 519 million euros a year
earlier, the Bilbao, Spain-based bank said in a filing today. That
missed the 1.05 billion-euro median estimate in a Bloomberg survey of
nine analysts as the bank took a 704 million-euro writedown for its U.S.
franchise. BBVA said it took the writedowns after analyzing its
“most problematic portfolios” as it prepares for a tough year with
recessions in its biggest markets of Spain and Mexico. [Emphasis added]This is what those trades in the respective months of January looked like…
As I said, the situation in Spain, and particularly the Spanish
banks, are worse than popularly publicized. Subscribers are welcome to
review the following bank research:A Review of the Spanish Banks from a Sovereign Risk Perspective – retail.pdf
Don’t be surprised if the contagion moves into the insurance sector as well:
Euro Bank Soveregn Debt Exposure Final -Retail Euro Bank Soveregn Debt Exposure Final – Pro & Institutional Sovereign Debt Exposure of European Insurers and Reinsurers (Empty 2010-05-19 01:56:52)And, of course I am expecting financial and economic contagion to ensue, quite possibly before year end. See Introducing The BoomBustBlog Sovereign Contagion Model: Thus far, it has been right on the money for 5 months straight!
Click here to look into subscribing to our research services! The entire Pan-European Sovereign Debt Crisis series is available for free by clicking here.
I will attempt to push out a detailed preview of a retail short and an
technology company stratey and business model report by the end of the
day. Cheers!
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Don't show me Spanish unemployment. Show me Spanish college-educated unemployment. Politically speaking, they're the only people who count. Just like in the U.S.
The underclass and whoever else, can riot all they please. Has that stopped ANY austerity legislation? Nope.
As long as the EU proposes to bailout and back Spain, unemployment figures and ratings mean NOTHING.
The clerks need to carry out a de facto, if not de jure, revolution. That will take 60% unemployment among the college-educated.
Here in the U.S., even the most reliable figure is only 10% for that group of useless clowns.
We have a long way to go to the revolution. And until the revolution? Mellonesque liquidation continues, right on schedule.
As Robyn says, Konichiwa bitches!
Both BBVA and STD are up about 30% from the lows of a month ago. Interesting that STD was just able to buy out a big chunk of assets from Citi and take on a load of UK assets. If the banks are in such precarious positions, and I agree that they are, how do they pull off the large expansions?
GBPUSD upside continues, since daily and weekly charts remain bullish.
http://stockmarket618.wordpress.com/about
The revolution will not be televised, it will not be brought to you in four parts commercial free from Xerox, my brothas...
It will not follow news about a white tornado, white lightning, or white people.
thanks reg.
Reggie, you've been excellent on this. Superb work. Thanks.
The only question I have is what does the 20% unemployment represent? Does that number include everything in terms of unemployed, underemployed, discouraged, etc.? If the 20% is generated using the same methodology we have for our 10% in the US then then that is beyond abysmal and more like Armageddon.
yes Bill, the 20% is actually a fairly accurate figure, but your real figure calculated the same way is now over 22%
http://www.shadowstats.com/alternate_data/unemployment-charts
"If the 20% is generated using the same methodology we have for our 10% in the US then then that is beyond abysmal and more like Armageddon."
The methodology we use is for the government to understate our 20% unemployment by CALLING it 10%.
See, we are more perniciously persistent liars here in the New World.
RM....Fantastic piece....
Other notes....
The cash fix by governments across the board is a "bank first" strategy....in hopes of levering infusions....
However...this also means "cart before the horse"....
It should be "cash infusions" to the public first....then levered by the banks via the public...
.........................
The fastest way to accomplish this is to maximize "public first" cash....via proper government tax strategies....ie 15% consumption tax...replaces individual and corporate income taxes....
The "bank first" strategy has FAILED....
..........................
The US and Europe are on a far worse track than Japan....and will stay on the same track until the tax strategy is corrected....If not corrected....the shift of wealth to those that have the best tax structure will gain wealth versus their peers....
The US and Europe are on a far worse track than Japan....and will stay on the same track until the tax strategy is corrected....If not corrected....the shift of wealth to those that have the best tax structure will gain wealth versus their peers....
Except that tax structure won't mean a thing when the US comes, knocking down a tax haven's door and standing at every exit. Do not be surprised if Europe's willing to come along for the ride and get some of their own as well. Especially if there is an administration that is not willing to play ball with the East (as the previous 2-3 administrations have been too willing to deal with the East to dispense with various issues).
The best tax structure is going to attract too much attention from the US's military and intelligence departments, if it is not the US.
I can agree with you about regarding the "bank first" strategy.