As The Truth Catches Up With Spain, Will Banks Finally Be Forced To Mark To Something Near Reality?
I have thoroughly warned (since 2009) that Spain will be one of the most catalyzing states suffering the Eurocalypse. Even more interesting, the rating agencies have a very significant (although not very utilitarian) role, see The Embarrassingly Ugly Truth About Spain: The IMF, EC and ALL Major Rating Agencies Are LYING!!!
Looking at today's news, my ruminations take form, but the question of the day is that, unlike with Greece whose bonds have killed banks (see How Greece Killed Its Own Banks! and Dead Bank Deja Vu? How The Sovereigns Killed Their Banks & Why Nobody Realizes They're Dead) until the ECB bought the pain from the municipal muppets in a Pan-European Ponzi-style shell game (see ECB As European Lender Of Last Resort = Institutional Purveyor Of A Pan-European Ponzi Scheme), Spain's asset and credit bubble pop ramifications are much too large too large to simply stuff in an ECB side pocket. So, what happens to those banks that leveraged up and gorged on all of this risky ass, risk free European sovereign debt??? Well, first let's peruse today's media as Bloomberg reports Spain’s Economy Shrinks for Fifth Quarter Amid Bailout Talk
Gross domestic product fell 0.4 percent in the three months through September from the previous quarter, matching the contraction of the second quarter, the Bank of Spain said in an estimate in its monthly bulletin released in Madrid today. That compares with a median forecast for a 0.7 percent contraction in a Bloomberg News survey of 10 economists.
Moody's passed on cutting Spain's sovereign rating (to below investment grade) recent and the general sigh of relief has been short-lived. Moody's cut Catalonia's rating (by two notches to Ba3) and four other regions. The rating agency cited two main factors. First is the deterioration in the liquidity situation of the regions, as evidenced by the low levels of cash reserves. Second, it cited the heavy reliance on short-term credit lines.
Three of the regions that were downgraded (Catalonia, Murcia and Andalucia) face large redemption before year end. Madrid had established a fund to help the regions secure financing of 18 bln euros. Eight of the 17 regions have requested funds, including 4 of the five that were downgraded by Moody's. These requests amount to a little more than 17 bln euros, practically exhausting the fund.
Separately, Spain's finance ministry acknowledged that is year's deficit, as in recent years, will overshoot the government's target. Indeed, this year's new projection of 7.3% overshoots not only the relaxed 6.3% shortfall, but even the 6.8% that Rajoy unilaterally suggested coming out of the EU meeting in which the leaders endorsed the fiscal pact. The 10.5 bln social security (not just pensions, but unemployment compensation and other transfer payments) deficit is being blamed, which itself is partly a function of the austerity face of economic weakness.
Well, the most stringent warning is also probably the most profitable if timed correctly, and that was the warning on the FIRE sector on CNBC (Reggie Middleton Sets CNBC on F.I.R.E.!!! and First I set CNBC on F.I.R.E., Now It Appears I've Set...):
For more on this, see The F.I.R.E. Is Set To Blaze! Focus On Banks, part 1. A lot of people, even professionals, truly believed that the FIRE malaise would not be European in nature. Whaattt????!!! As expected, this European Insurer Needs Insurance As $6B Of Its Bonds Are Instantly Subordinated Due To "Spain's Pain". Insurers are very heavy investors in European sovereign debt AND the debt of financial institutions. But hey, weren't the European financial institutions getting killed by choking on Sovereign debt (reference Dead Bank Deja Vu? How The Sovereigns Killed Their Banks & Why Nobody Realizes They're Dead)? So, you know what's up next right?