Spain's Fixed??? Even Spain's PM Admits that REAL Capitalization Needs Are Closer to 500 billion Euros!!!

Phoenix Capital Research's picture


While the media is abuzz with the notion that the Spanish bailout will save Spain, more key questions such as “where is the money going to come from?” are being ignored.


Indeed, at this point, it’s not clear if the Spanish bailout is coming via the EFSF or the ESM. If the funding comes via the EFSF then the entire exercise is pointless. The EFSF, if you’ll recall, is essentially a failed entity given that it couldn’t even raise €10 billion via bond auctions without having to step in to make sure the auctions didn’t fail.


Put another way, the EFSF doesn’t have the funds to prop up Spain. So if the funding for Spain’s bailout is to come from there, Spain’s not getting any anything.


However, if the funding comes from the other mega-bailout fund, the European Stability Mechanism (ESM), then ALL Spanish bondholders will become subordinate to the ESM.


Put another way, in the event of insolvency, the ESM’s claims will be senior to every one else’s.


Given that Germany’s finance minister Wolfgang Schaeuble wants the funding to come from the ESM (you’ll see why in a moment). It’s likely it will be the ESM who funds” the Spanish bailout as Germany is in fact the real backstop of the EU. So what Germany says goes.


Schaeuble Wants Spain Aid To Come From ESM, Handelsblatt Says


German Finance Minister Wolfgang Schaeuble wants aid for Spain’s banks to come from the future permanent backstop, the European Stability Mechanism, to avoid greater risks for the German budget, Handelsblatt said.


Spain would not be able to guarantee loans from the current backstop, the European Financial Stability Facility, if funds for its banks came from the EFSF, the newspaper said, citing European Union diplomats it didn’t name.


Germany’s share of guarantees to the EFSF would rise in such an event, the newspaper said. The ESM is financed by all 17 euro-region countries, including those that receive funds from it, the newspaper said.


If this occurs, a Spanish bailout via the ESM will ultimately damage the Spanish banking system as private bondholders and other investors will flee Spanish bank bonds since they know that they are not likely to get much, if anything, if a Spanish bank fails (which the markets now know they will).


Indeed, one has to wonder… just how does a €100 billion bailout solve Spain’s banking woes when its Prime Minister was suggesting the real damage is more to the tune of €500 billion in a text message to his Finance Minister???


Indeed, if Rajoy’s text is even remotely truthful, then we can assume that Spain’s real capitalization needs are multiples of the €100 billion bailout… something that the EU media is picking up on already. As one example, JP Morgan believes that when all is said and done Spanish banks could be looking at €350 BILLION in capital needs.


Bank bail-out won't end Spain's property nightmare


In a recent research note, economists at investment bank JP Morgan estimated that despite the €40bn (£32.4bn) or so that many in the market believe Spain’s banks need to be adequately recapitalised, the full requirement could be as much as €350bn once all is said and done.


It’s highly likely JP Morgan is accurate or even underestimating here. Remember, we’re talking about a banking system stuffed to the brim with loans made during the following housing bubble (Spain in blue, the US in gray).

According to the Economist in 2006, Spain built FIVE TIMES as many homes as the UK (FYI the Spanish population is 47 million… UK population is 62 million). Today, Spanish housing starts are down 90% from their peak and Spain is littered with unfinished projects.


However, instead of bringing their inventory to market, Spanish banks continue to offer loans of 95%-100% at low interest rates to attempt to sell these properties at inflated levels. Indeed, things are so desperate that literally every Spanish bank out there is launching English-speaking websites trying to lure buyers from around the globe into buying properties.


Those who buy will likely find themselves losing on the deal.


            Bank bail-out won't end Spain's property nightmare


Recent data from the Knight Frank Global House Price index shows that Spanish residential properties fell by 7.3pc in the year to the end of March. Official Spanish data state that prices are down 20pc from the peak, but those figures are based on bank valuations, rather than actual sales.


In spite of the small but growing number of articles in the British media that ask whether now is the time to buy Spanish property, it is likely, if the case of Ireland is anything to go by, that values will fall by as much as 50pc from the peak before they begin to bottom out.


In this context, the following data points make it more than obvious that Spain will need much more than €100 billion to recapitalize its banks… and that Spanish banks will be increasingly facing insolvency due to their bond issuance schedule for the remainder of the year.


Consider the following…


  1. Spain’s banking system is roughly €3 trillion in size (3X Spain’s GDP).
  2. Spanish banks’ gross borrowing from the ECB was €316 billion in April.
  3. Spanish banks need to roll over 20% of their bonds (roughly) €600 billion this year.


Thus, by even a simple back of the envelope analysis it is clear that Spain will need a lot more than €100 billion to recapitalize its banks. How on earth Spanish banks can roll over €600 billion in bonds at a time when the global bond market has just learned that all private bondholders will be subordinate to the ESM is beyond me (read: it won’t happen).


Folks, the Spanish bailout isn’t going to work. If Spain’s Prime Minister admitted in private that needs are more like €500, then you can bet the €100 billion bailout, which isn’t even guaranteed at this point, will solve nothing.


So if you’re not taking steps for the potential that Spain could in fact default and take down the European banking system with it (NO ONE in the EU has €500 billion to spare), you need to take action now.


On that note, 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.


And ALL of this is available for FREE under the OUR FREE REPORTS tab at:











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otherleading's picture

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falak pema's picture

ask yourself one thing : who is more worried by Greek Meltdown and messy exit, the US banks or the Euro banks? 

Its a question of who carries the bigger negative ticket... something tells me...we may actually find out soon.

Bansters-in-my- feces's picture

"That Pesky Fractional Reserve Banking"....

Does it EVERY time.....

Ps....Fuck you Little weasel timmy and Bend Over Ben.

Paul Thomason's picture

The 'stars' are indicating it's not going to work - 'Astro-Technical Review: Countdown To The Big Bang'

Snakeeyes's picture

Look at Spain's unemployment rate, declining house prices and horrid state of their banks.

It should be renamed "Zombieland."


tony bonn's picture

the most interesting thing about this fiasco isn't criminal, imbecilic banksters who with their impressive academic credentials created a financial fukushima, but the evil media and dumber consumer who believe all of the drivel spouted about a about strong delusion and itsy bitsy teensy weensy polka dotted IQs

OneTinSoldier66's picture

Keep stackin'. Bring the velocity of that paper stuff down to ZERO! I guess it's the only way to get the message through to their insolvent craniums.

El Oregonian's picture

Things should start turning around now that the Fed has past around larger buckets to the euro passengers on the Titanic.

timbo_em's picture

The aid for Spain will come from the ESM. The EFSF ex Spain is simply not big enough. The only way that the EFSF would be big enough is if other countries increase their share accordingly. However, there is no way that Merkel/Schäuble are going to ask the German parliament for an increase. It would be the third time and the last two times were already quite shaky. So the ESM remains the only option. Big but(t) coming: In order to tap the ESM Spain has to ratify both the ESM and the new fiscal treaty. So far, they haven't ratified neither one nor the other.

Grand Supercycle's picture

Rally warning continues...

SPX-EURUSD-GBPUSD-AUDUSD-GOLD-SILVER bullish warning on daily charts strengthened further on Friday & more rally expected.

Shorts will be squeezed next week onwards.

DOW initial target approx 13,170 & more upside after that.

USDX daily chart bearish signal strengthened on Friday & further downside expected.

LowProfile's picture

Chart on your main page looks like DOW max is 14,800.

Problem is that if everyone knows from the charts the USD needs to sink, and the EUR needs to rally, then something else happens. 

IMO massive EUR printing to cover the bad loans would cause a premature conclusion to that DOW wedge, and cause a channel violation on the USD/EUR.

I would have hedges and stops in.


Hulk's picture

Graham, the thing that you don't get is that the rest of the PFIIGS will bail them out...

Hmm, come to think of it, I DON"T GET THAT EITHER !!!

Gromit's picture

So we can solve the US housing crisis by subordinating exisiting financing to new loans?

LowProfile's picture

I hear the whine of presses spooling up.

Time to print some 1000 EUR notes, stat!

USD gonna catch a bid.  Need to fatten up the prettiest horse in the glue factory before we turn it into Elmer's.


Zero Govt's picture

"€500 BILLION"


this is the same institution (Spanish Govt) that submitted to Trichet at the ECB (twice) their Banks were "A ok" the last one only last year

this is the same institution (Govt) that said only a few weeks ago they won't be needing a bailout, No Sireeee, all is well, this ship's never looked better

and you thought clowns were over-acting, that's comedy-lite compared to the politicians (and their bean counters)... what a complete bloody farce 

"Spanish Banks need to roll over €600bn in Bonds this year..."

try keeping that lot afloat ...what was the plan?

LowProfile's picture


try keeping that lot afloat ...what was the plan?

Shit floats - Until it breaks up.

Matt's picture

Like I said before, better print up a trillion euros for Spain, just to be sure. All they need is 200 billion euros worth of gold, hand it over to the Germans, and the Germans will lend them the 1 trillion euros with interest. Not a bad deal at all, since only cave dwelling maniacs hoard gold.