Spain Just Gave Us a Glimpse Into the True State of the EU Banking System

Phoenix Capital Research's picture


The following is an excerpt from my most recent client letter.


In case you missed it, Spain just gave the entire world a glimpse of what’s happening “behind the scenes” in the financial system.


I am of course referring to the Bankia nationalization,  the largest bank nationalization in Spain’s history.


Bankia was formed in 2010 when the Spanish Government merged seven insolvent cajas  So it’s no surprise that Bankia was a trainwreck waiting to happen… at least to anyone with a working brain.


However, both the bank and the Spanish Government decided to maintain the charade that the bank was in great form right up until it collapsed (only one month ago Bankia was talking about paying its dividend).


On May 9th the Spanish Government stepped in to nationalize the bank. Its first step was to convert its (the Spanish Government’s) €4.5 billion worth of preferred shares to common shares, thereby taking a 45% stake in the bank.


Then Bankia announces €17 billion of new write-downs as well as €7 billion of mark-downs on investments, thereby rendering the bank insolvent. It also revised its 2011 results from a €309 million profit to a €3 billion LOSS.


The end result… Bankia just received a €19 billion Euro bailout, the largest in Spain’s history. That’s not the problem however. The REAL problem is that Spain itself is broke…


…so where is the €23.5bn for the Bankia rescue going to come from? The state's Fund for Orderly Bank Restructuring (FROB) is down to €5.3bn, and there are many other candidates for that soup kitchen.


Spain must somehow rustle up €20bn or more on the debt markets. This will push the budget deficit back into the danger zone, though Madrid will no doubt try to keep it off books – or seek backdoor funds from the ECB to cap borrowing costs. Nobody will be fooled…


The Centre for European Policy Studies in Brussels puts likely write-offs at €270bn. We could see Spain's public debt surge into triple digits in short order.


As I wrote in my column this morning, the Spanish economy is spiralling into debt-deflation. Monetary and fiscal policy are both excruciatingly tight for a country in this condition. The plan to slash the budget deficit from 8.9pc to 5.3pc this year in the middle of an accelerating contraction borders on lunacy.


You cannot do this to a society where unemployment is already running at 24.4pc. Either Europe puts a stop to this very quickly by mobilising the ECB to take all risk of a Spanish (or Italian) sovereign default off the table – and this requires fiscal union to back it up – or it must expect Spanish patriots to take matters into their own hands and start to restore national self-control outside EMU.


In addition to this, Spain’s regional governments are seeking bailouts:


            Spain's Catalonia seeks government help to pay debt


Spain's wealthiest autonomous region, Catalonia, needs financing help from the central government because it is running out of options for refinancing debt this year, Catalan President Artur Mas said today.


"We don't care how they do it, but we need to make payments at the end of the month. Your economy can't recover if you can't pay your bills," Mas told a group of reporters from foreign media.


A spokesman for the Catalan government later emphasised that Mas was referring to payments that must be met routinely each month and not a specific deadline this month.


The debt burden of Spain's 17 highly devolved regions, and rising bad loans at the country's banks, are both at the heart of the euro zone debt crisis because investors are concerned they could strain finances so much that Spain, the currency bloc's fourth biggest economy, will need an international bailout.


Catalonia, which represents one fifth of the Spanish economy, has more than 13 billion euros in debt to refinance this year, as well as its deficit.


All of the regions together have 36 billion euros ($45 billion) to refinance this year, as well as an authorised deficit of 15 billion euros.


Last year many of the regions financed debt by falling months or even years behind in payments to providers such as street cleaners and hospital equipment suppliers.


Thus, Spain has illustrated the true nature of the EU Crisis in just one week. Specifically…


  1. Both governments and banks are lying about the real risks to their balance sheets (Bankia passed the EU’s stress tests).
  2. We have reached the point at which Governments can no longer bailout their own failing banks as the Governments themselves are bankrupt (see Catalonia and Spain as a whole).


To recap… Spain has only €5 billion left in its own bailout fund… at a time when its largest bank needs €19 billion (at the least)… and its regional government have begun asking for bailouts too.


Oh, and the Spanish banking system needs to write off another €270 billion…  if Spain cannot cobble together €19 billion, where on earth will it get the money needed to support its collapsing banking system which is on the verge of having to write down hundreds of billions of Euros?


This is the state of affairs in Europe: bankrupt nations trying to bailout bankrupt banks or looking for bailouts from funds that are backed by other bankrupt nations.


What could go wrong?


On that note, Spain will take down the EU, guaranteed. I’ve been warning about this for months and everything is unraveling exactly as I forecast. So if you’re not preparing for an end to the EU in its current form as well as a European banking collapse, you need to get moving.


I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investment (both direct and backdoor) you can make to profit from it.


This report is 100% FREE. You can pick up a copy today at:


Good Investing!


Graham Summers


PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.






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XtraBullish's picture

For ways to avoid losing all your savings, I just published a paper explaining how to avoid owning paper (financial assets) and holding cash and gold. It is free because you all know how to do it anyway. But since I lost all my dough being short for the past 42 months, please subscribe so I can use the fees to buy more put options.

ghenny's picture

Lets cut Graham some slack.  If you are an apprentice sorcerer you need practice. Sooner or later every Bear is right and of course Every Bull.  Of course crying for the Wolf can get you into trouble if you do it too often, but eventually he shows up.  This may be one of those moments.

shovelhead's picture

I may not have seen the wolf yet but there are wolf farts in the wind.

Possible Impact's picture

The barbarians are at the gate. They sported an RFID Toll Tag, so we let them enter.

Haddock's picture

How are you playing this Graham?

cb1489hm80's picture

Read Jim Sincliar: QE to infinity.


As for me I'm collecting all the gold and silver I can find. Did the Scrap4treasure program. 


Just waiting for gold to get over 2k and silver back above 50.


Thanks to Greece and Spain and the rest the Fed's going to help them get there sooner.

Treeplanter's picture

The bullion banks may get too nervous to naked short much longer.  Once my junior  miners make proper bottom formations i'm all in. 

zrussell's picture

Don't fret! The Global Banksters have orchestrated the conditions that have led up to this "challenge". They already have a plan that will provide "liquidity", calm the masses, and usher us into the next phase of the NWO.


Relax, and enjoy the ride. Everything will be provided! Have faith!



WaltzTangoFoxtrot's picture

So that which was the cajas "good bank" became a Bankia "bad Bank."  Let me show you my shocked look....



Negro Primero's picture


Maybe this is your last big chance Mariano: send them "La Armada Invencible" joder !!!

"Defiant Gibraltar ignores Spanish protests over The Rock and will celebrate Jubilee with 100 boat flotilla"

Iam_Silverman's picture

All of this "Hanky Banky" must stop!

Ned Zeppelin's picture

Well, it may be tiresome, but it may also be true. if it is, look out below.  I think the skepticism of G's persistent views is grounded in some belief, not unwarranted, that the ECB and other Central Banks have some as yet un played parlor tricks to bring out to save the day.  I am not so sure. 

digitlman's picture

This is like a waiter who can't stop thanking you for dining at that's embarassing to say the least.

TraitorsHang's picture

Slowest. Train-wreck. Evar.

But in the spirit of...
KE = (m * v^2) / 2
...the *mass* of the train is large enough to kill nearly everyone.

So strange to watch the world die like this: at the hands of mediocrity.

Widowmaker's picture

"… at least to anyone with a working brain"

Buy the fucking dip.

itisthetimethisistheplace's picture

4 articles a week...that just means more opportunity to keep flushing Graham's head in the toilet.

He really is the whipping boy of this forum. If everything he wrote was constructive and ORIGINAL then maybe I would give him some slack.

Nowadays, I am guilty of scrolling straight to the comments and weeding out the Graham bashers. It brightens my day.

jomama's picture

no one's forcing you to read it- or commenting on it, for that matter.

itisthetimethisistheplace's picture
Yawn. Run along now, your subscription to Graham's newsletter is about to expire.
kito's picture

leave graham alone, he is tylers special needs adopted younger brother.........

Zero Govt's picture

Zzzz (yawn) ..we there yet Graham?

4 articles a week on the same topic, hoping this broken record changes it's tune like tomorrow if ya could!

mkhs's picture

So are we, like, in a financial crisis?

Treeplanter's picture

Could be.  Graham makes a case that QE is not lilkely in near future.  May have to go to Tarot and the I Ching. 

StychoKiller's picture

"How much longer before the economic collapse?"

From the I-Ching:

59. Houan / The Dissolution, the Scattering:

The trigram representing water, and that for wind moving above the water, form Houan. The ancient kings, in accordance with this, presented offerings to the deity and established the ancestral temple.

Houan intimates that under its conditions there will be progress and success. The king goes to their ancestral temple; and it will be advantageous to cross the great stream. It will be advantageous to be firm and correct.

The bottom line, as six: shows its subject engaged in rescuing from the impending evil, and having the assistance of a strong horse. There will be good fortune.

The second line, as nine: shows its subject, amid the dispersion, hurrying to their contrivance for security. All occasion for repentance will disappear.

The third line, as six: shows its subject discarding any regard to their own person. There will be no occasion for repentance.

The fourth line, as six: shows its subject scattering the different parties in the the state; which leads to great good fortune. From the dispersion they collect again good people standing out, a crowd like a mound, which is what ordinary folk would not have thought of.

The fifth line, as nine: shows its subject amidst the dispersion issuing their great announcements as the perspiration flows from their body. They scatter abroad also the accumulation in the royal granaries. There will be no error.

The topmost line, as nine: shows its subject disposing of what may be called its bloody wounds, and going and separating themselves from their anxious fears. There will be no error.

One moving line transforms 59 to:

61. Tchong Fou / The Interior Truth

The trigram representing the waters of a marsh, and that for wind above it, form Tchong Fou. The superior person, in accordance with this, deliberates about causes of litigations and delays the infliction of death.

Tchong Fou moves even pigs and fish, and leads to good fortune. There will be advantage in crossing the great stream. There will be advantage in being firm and correct.

The bottom line, as nine: shows its subject resting in their self. There will be good fortune. If they sought to rest in any other, they would not find rest.

The second line, as nine: shows its subject like the crane crying out in her hidden retirement, and her young ones responding to her. It is as if it were said, 'I have a cup of good spirits', and the response were, 'I will partake of it with you.'

The third line, as six: shows its subject having met with their mate. Now they beat their drum, and now they leave off. Now they weep, and now they sing.

The fourth line, as six: shows its subject like the moon nearly full, and like a horse in a chariot whose fellow disappears. There will be no error.

The fifth line, as nine: shows its subject perfectly sincere, and linking others to them in closest union. There will be no error.

The topmost line, as nine: shows its subject on a rooster trying to mount to heaven. Even with firm correctness there will be evil.

Zero Govt's picture

not until Graham cranks it up to 7 articles a week on the same topic

if you feel like you know the Economic Apocalypse inside out and more intimately than your wife or GF it's because there's a whole fucking industry pumping out Peak Hysteria 24/7 from every oriface of the financial industry

it'll be a big relief when we finally get there if only that these clowns STFU

derek_vineyard's picture

he promised (cross your heart hope to die)by may/june 2012 crash with 100% certainty in last desperate attempt to be right.

last time a charm? (for predictions)