As I've warned for weeks, has entered a full-scale Crisis.
This was obvious right from the get go. After all...
* Total Spanish banking loans are equal to 170% of Spanish GDP.
* Troubled loans at Spanish Banks just hit an 18-year high.
* Spanish Banks are drawing a record €316.3 billion from the ECB
(up from €169.2 billion in February).
Things have gotten so bad that Spanish citizens are pulling their money out of Spain en masse: over €100 billion left the Spanish banking system in 2012 alone.
As bad as they are, even these data points don't do justice to the toxic sewer that is the Spanish banking system.
Case in point, over HALF of all Spanish mortgages are owned by Spanish cajas.
If you're unfamiliar with the caja banking system, let me give you a little background...
Until recently, the caja banking system was virtually unregulated. Yes, you read that correctly, until about 2010-2011 there were next no regulations for these banks (which account for 50% of all Spanish deposits). They didn't have to reveal their loan to value ratios, the quality of collateral they took for making loans... or anything for that matter.
So, with Spain today, we have a totally unregulated banking system sitting atop HALF of ALL Spanish mortgages after a housing bubble that makes what happened in the US look like a small bump.
Spain's housing bubble is the dark blue line below. The US is the gray one.
Oh, I forgot to mention, the cajas primary lending market during Spain's housing boom were subprime and sub-sub prime borrowers.
Put another way, today the entire Spanish banking system is saturated with toxic mortgage debt on a level that makes the US in 2008 LOOK GREAT.
To whit, Spain has just performed the largest bank nationalization in its history: Bankia. Here’s a brief summation of the story.
Bankia was formed in 2010 when the Spanish Government merged seven insolvent cajas. In plain terms, Bankia was a trainwreck waiting to happen… at least to anyone with a working brain. However, both the bank itself and the Spanish Government decided to maintain a 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.
The Spanish Government assured everyone that this move was adequate and that Bankia was solvent. Then Bankia announces €17 billion of new write-downs as well as €7 billion of mark-downs on investments. It also revised its 2011 results from a €309 million profit to a €3 billion LOSS.
Let that sink in for a moment. The bank, through accounting gimmicks, claimed it made €309 million in 2011. The second its true conditions were exposed it turned out Bankia actually LOST €3 billion
I can assure you that most if not ALL major banks in the Western world are engaging in similar accounting practices to hide the true conditions of their balance sheets. The coming Crisis will reveal the true state of things and will involve in many well known names going under.
In Bankia’s case all of this culminated in the bank receiving a €19 billion Euro bailout, the largest in Spain’s history. And for certain this amount of money will be increased dramatically: Bankia’s loan book is roughly €200 billion in size (1/5th the size of Spain’s GDP) and I can assure you a major chunk of this is total and complete garbage.
That’s not the problem however. The REAL problem is that Spain itself is broke and doesn’t have the money to prop this bank up…
If you don't want to take my word for it, have a look at the Spanish stock market. It's been in a free fall for most of 2012 as Spain's banking system teeters on the brink of collapse (remember they're drawing over €300 BILLION in emergency loans from the ECB.
If you think that chart looks bad, take a look at Spain's LONG-TERM chart where the market has just broken a 15 YEAR TRENDLINE signaling that the bully market is OVER and setting the stage for a horrific Crash.
This is hands down the ugliest chart out there today. Spain is telling us point blank that disaster is looming.
With that in mind, I believe we have at most a month before Spain drags down the entire EU. The Spanish economy and banking system are too large to be bailed out. The IMF and ECB know this.
Moreover, worldwide banking exposure to Spain is well over €1 TRILLION. What impact do you think that might have on the EU which has an entire banking system that is leveraged at 26 to 1 (Lehman Brothers was leveraged at 30 to 1 when it collapsed)?
Heck even Ben Bernanke and others have issued warnings that Europe could drag down the US banking system if it crumbles.
So if you're not taking steps to prepare for a global banking Crisis beginning first in Europe before spreading to the US, you NEED to get moving NOW!
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