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The Spanish Bad Bank Emerges, Confirms Spanish Real Estate Absolute Disaster

Tyler Durden's picture


The details of the Spanish bad bank are being released and it is ugly - far uglier than many had expected. And while the Spanish government expects priovate interest to take some of this massively discounted 'crap' off their hands, we have three words: 'deleveraging' and 'no bid!'.


The Spanish government remain in a world of their own with this level of self-delusion. Haircut details as per the below:

What this table shows is up through what valuation point there are no natural bids on given Spanish assets. In other words, nobody will bid on Spanish Land at even an 80% haircut, and the fair value of new Housing is well below half of book value! Said otherwise, the state of Spanish real estate is an absolute catastrophe and the bad bank implicit haircuts just confirmed this.

Finally, the comedy concludes:


To summarize: Spain wants its banks to default on its assets, without actually defaulting, have the liability be transferred to a third party, and then not have this third party's debt be counted against the debt of the country.

A comparable analogy would see someone defaulting on their mortgage, keeping the house, and not have the default count against their credit rating.

Finally, as a reminder, Spain has €180 billion in bad loans and rising exponentially. Even a blended 50% haircut will barely cover just the existing population of bad loans, which will very soon surpass €200 billion and proceed to soar happily ever higher, at which point the current Bad Bank iteration will be found to be far too little (as usual), about 3 years too late.


Just to legitimize the Bad Bank, Spain also added a gratuitous timeline to make this idea seem more credible and palatable.

Of course, none of the dates above matter when one Grexit would crush not only Spain, but Europe. But in a vacuum the calendar sure is purdy.

Full bad bank presentation from the Bank of Spain (pdf):


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Mon, 10/29/2012 - 13:03 | 2928241 Atlantis Consigliore
Atlantis Consigliore's picture

http://youtu.be/u0nQMgaJibc  Banks La Cuceracha   5 Money Center Banks NY

Mon, 10/29/2012 - 16:28 | 2928826 knukles
knukles's picture

WTF are they talkin' about?
All the banks are already bad!

Mon, 10/29/2012 - 20:49 | 2929149 Harlequin001
Harlequin001's picture


Classic, absolute fucking classic...

I've got a better idea Mr Restoy, why don't you just remove all the penalties for trading whilst insolvent?

In fact I’ve got an even better ‘better idea’. Instead of all this screwing around with bad banks and hiding invisible losses, why not just leaglise the ‘trading whilst insolvent’ aspect of general business so that no one need feel the need to hide what they’re doing, and simply introduce a second type of money.

We could have one type of money for general trading and one ‘for investment losses, fraud and default’. The money ‘for investment losses, fraud and default’ could be used by hedge funds, pension funds and big banks to trade with each other and the other money could be used by ordinary folks to buy food, that way they can print all they want without concern for the inflationary effects of what they’re doing. We could make the money ‘for investment losses, fraud and default’ from something like paper so that no one need a actually ‘lose’ any 'real' money and the other could be easily distinguishable by using something more ‘traditional’.

The hedge funds, pension funds and big banks could knock themselves out, make trillions in profits and fund the fiscal deficit through taxes and no one else would really give a fuck, the little guy could buy food and staples and generally just go about his business. You wouldn’t even need to worry about fixing exchange rates because the market would do that. Anyone trading in money ‘for investment losses, fraud and default’ would very soon get the middle finger from the ordinary folks, and Mr Krugman et al would find out very quickly and in no uncertain terms precisely just where and when they could go and get fucked.

Of course that just leaves the minor problem of a government that can't exchange its money ‘for investment losses, fraud and default’ for real goods from ordinary folks, but we could easily get around that problem by shrinking it, massively...


Mon, 10/29/2012 - 14:25 | 2928495 The trend is yo...
The trend is your friend's picture

When they say: Details in a couple of days do they mean nov 7th?

Mon, 10/29/2012 - 14:54 | 2928587 unununium
unununium's picture

Super SIV.  DOA.

Mon, 10/29/2012 - 12:31 | 2928125 buzzsaw99
buzzsaw99's picture

bad bank = redundant

Mon, 10/29/2012 - 14:40 | 2928547 The trend is yo...
The trend is your friend's picture

somebody call greylock or whatever that bonehead hedgefund is and tell em we have another no brainer trade for him 

Mon, 10/29/2012 - 12:32 | 2928128 slaughterer
slaughterer's picture

When they deploy the bad bank strategy, you know they are just one step away from "haircuts."

Mon, 10/29/2012 - 12:33 | 2928133 CDSMonkey
CDSMonkey's picture

Why do governments and so many investors, who should know better, fall for the bad bank thing?

Mon, 10/29/2012 - 12:43 | 2928167 john39
john39's picture

fixing the problem was never the plan.

Mon, 10/29/2012 - 12:46 | 2928180 bank guy in Brussels
bank guy in Brussels's picture

For some reason kicking bad debts into a separate 'location' does often buy some time

In our part of Europe we had the Dexia collapse just after being rated #1 good shape in one of the stress tests

Spread across France, Luxembourg and Belgium the re-structuring has been handled in complex ways including 'bad bank' plans ... in Belgium we have a new functioning bank now, Belfius, which includes part of the old Dexia

Many bad debts of old Dexia are still floating around, issues are still pending, but the layers of restructuring complexity, bailout promises etc. did kick the can

It is maybe like how immigrants in many countries evade debt collectors, with multiple fellow-countrymen using multiple locations ... No Mr x is not here, he moved and gone ...


Mon, 10/29/2012 - 12:32 | 2928129 FL_Conservative
FL_Conservative's picture

Meanwhile the EURo goes Baumgartner.

Tue, 10/30/2012 - 07:40 | 2930795 Tango in the Blight
Tango in the Blight's picture

Baumgartner had a parachute and made a soft landing, the euro will splatter into the ground instead.

Mon, 10/29/2012 - 12:35 | 2928131 Popo
Popo's picture

The entire concept of a "bad bank" is just plain old "cooking the books".  You've got losses and you're attempting to hide them. 

If any other business did that they would be committing accounting fraud, and the guilty parties would be doing jail time.

Furthermore,  announcing that the "bad bank" will be "profitable" is also fraud because it suggests that (in aggregate) non-performing loans will become performing loans.  This is clearly misrepresentation because if it were the case there would be no need for a bad bank to begin with.

Mon, 10/29/2012 - 12:35 | 2928139 MiltonFriedmans...
MiltonFriedmansNightmare's picture

Just doing God's work...that is all....

Mon, 10/29/2012 - 12:34 | 2928134 Neethgie
Neethgie's picture

Id buy spanish land if the EU guarantees the Single payment scheme continues, they basically give you money for having empty land...

Tue, 10/30/2012 - 07:04 | 2930755 tonyw
tonyw's picture

but don't forget the spanish government can and do slap a tax on that land and it can be far higher than any single payment schemes.

Tue, 10/30/2012 - 11:01 | 2931393 Albertarocks
Albertarocks's picture

I'd buy all the land in Spain as long as I don't have to pay for it.  It appears that's the way things work over there so what the hell... I'll take it all.

Mon, 10/29/2012 - 12:34 | 2928136 jmcadg
jmcadg's picture

The Spanish government remain in a world of their own with this level of self-delusion. Discunt details below...

Freudian slip!

Mon, 10/29/2012 - 12:44 | 2928166 RSBriggs
RSBriggs's picture

Not just a Fedudian slip, that's Freudian garter belt and panties, too!

Mon, 10/29/2012 - 12:38 | 2928148 Misean
Misean's picture




Mon, 10/29/2012 - 12:42 | 2928163 Winston Churchill
Winston Churchill's picture

We all need some of whatever Rajoy is smoking.

Hashish,opium and hopium pressingx.

Mon, 10/29/2012 - 12:50 | 2928189 bank guy in Brussels
bank guy in Brussels's picture

There are a lot of fine Spanish wines, like the famous Rioja, will do the trick well enough

UK Telegraph's Ambrose Evans-Pritchard occasionally writes of drinking Rioja as he finishes his articles, often posted around midnight ... with a spelling error or two

Mon, 10/29/2012 - 12:38 | 2928152 Unprepared
Unprepared's picture

.. "uiglier"... "priovate"... "Discunt"..

Tyler, have a rest, take today off.

Mon, 10/29/2012 - 14:04 | 2928418 debtor of last ...
debtor of last resort's picture

Well, discunt is quite right i believe.

Mon, 10/29/2012 - 12:38 | 2928153 lolmao500
lolmao500's picture

I will buy all that Spanish land... if there's no tax on it. GIVE IT TO ME...

Mon, 10/29/2012 - 12:59 | 2928228 bank guy in Brussels
bank guy in Brussels's picture

It's always the question, even if it was, for now, 'allodial' land now with no tax on it, whether that legal regime would be sustained in the future

Oddly enough it is sometimes in what are thought of as poor kleptocracy countries like in Africa, where local people have their land with no tax

In any case history changes countries, and they are no longer what they were - What is rare for humans, is to have the place where they live, be the same all their lives

Sometimes I talk to older Belgians who were children here when this was under Nazi occupation, swastika flags flying

Now in Europe there are ex-Americans who speak of how different America was when they were children, and how our sector of Europe, friendly and non-oppressive, is actually now more like the 'older America' than America itself now

Perhaps indeed wisdom from retired financial newsletter writer Harry Schultz, oft quoted by Jim Sinclair ... everybody needs 3 countries, passport in one country, a residence in a 2nd country, assets in a 3rd ... Harry is in his 80s today living tax-free in Monaco

Mon, 10/29/2012 - 13:15 | 2928278 walküre
walküre's picture

Duh! That's because all the Swastika flags are now flying in the US. Invisible to the naked eye.

Mon, 10/29/2012 - 12:39 | 2928156 butchee
butchee's picture

 Discunt details below...   That is a pretty funny typo.

Mon, 10/29/2012 - 12:40 | 2928157 mr. mirbach
mr. mirbach's picture

And here in Amerika the "Bad Bank Assests" are packaged as derivatives and bought be the FED. 

Why isn't the FED purchasing the Spanish "Bad Bank Assests" to add to their "Balance Sheet" ??

Mon, 10/29/2012 - 12:48 | 2928184 machineh
machineh's picture

Maybe they are ... after all, how would we know?

Mon, 10/29/2012 - 12:41 | 2928160 jmcadg
jmcadg's picture

A comparable analogy would see someone defaulting on their mortgage, keeping the house, and not have the default count on their credit rating.

No, It's worse than that. Rather than not count on their credit rating. They want to ignore there is a debt to pay period! Vapourised.

Mon, 10/29/2012 - 12:41 | 2928161 Al Huxley
Al Huxley's picture

I think there should be a complete moratorium on reporting about Spain, Greece and probably Portugal and Italy, beyond a recurring daily story/headline that says 'PIIGS Still Broke, EU Officials Continue Denials, Obfuscation'.  It would save everybody a lot of time.

Mon, 10/29/2012 - 12:42 | 2928164 LouisDega
LouisDega's picture

In other news, Hurricane Sandy

Mon, 10/29/2012 - 12:43 | 2928169 apberusdisvet
apberusdisvet's picture

I smell a Nato "humanitarian" invasion coming.  It's obvious that all of the Spanish people are terrorists by withdrawing money from the banksters.  Can't let that happen, now can we?  Franco, the ultimate fascist must be smiling in his grave.

Mon, 10/29/2012 - 12:47 | 2928181 Temporalist
Temporalist's picture

There are no bad banks in Spain or anywhere else in the Euro.  There have been extensive stress tests and obviously any banks remaining are solvent and stress free.  Real estate bottomed years ago.

Mon, 10/29/2012 - 12:47 | 2928182 lolmao500
lolmao500's picture

In other news, it's even worse in the US. Millions have not paid any mortgage for the last 4 years and stay in their houses because there's too many foreclosures.

At least in Spain, the banks admit how many foreclosures/bad loans they have... not in America.

Mon, 10/29/2012 - 16:23 | 2928816 neidermeyer
neidermeyer's picture

Only partially correct looterman , there are also many millions that are putting their mortgage payments into escrow until their servicer can identify who owns the mortgage and where the payments are going.

Mon, 10/29/2012 - 12:48 | 2928185 SpanishGoop
SpanishGoop's picture

How will the bad bank-investors towel look like ?


Mon, 10/29/2012 - 12:57 | 2928214 Atlantis Consigliore
Atlantis Consigliore's picture

Whats the Spanish BankS in NY Called; EL COCKROACH BANK??? 

Mon, 10/29/2012 - 12:58 | 2928222 walküre
walküre's picture

Land in Spain is on sale with a 80% discount? Cool.

Mon, 10/29/2012 - 17:31 | 2929069 hooligan2009
hooligan2009's picture

yes, thats the 10 square metre steep bit on the side of the Pyrennes where trees cant grow..yours for only 10 euros per sqaure metre (down from 100 last year and 10,000 in 2008).

Mon, 10/29/2012 - 22:22 | 2930059 dugorama
dugorama's picture

I'd take a few hundred at that price.  why not?

this is what's supposed to happen when people over bid - the assets become available for those who remained prudent.  not hte prop (propped up) job we got in the states.  let those who failed, fail.  and let the rest of us bid on their assets.  yes, I would like a nice wine country place in Spain.  At an 80% haircut, I might be able to afford it.  

Mon, 10/29/2012 - 12:59 | 2928226 americanspirit
americanspirit's picture

Bad banks! Go to your room and don't come out until suppertime.

Mon, 10/29/2012 - 13:04 | 2928247 Professor Fate
Professor Fate's picture

In the "Adventures in Can Kicking and Books Cooking" department, even Kalifornia pales in comparison to Europe.

Mon, 10/29/2012 - 13:26 | 2928309 BovineCapital
BovineCapital's picture

In the timeline they allow only the month of November for the review of the assets. Then they just start transfering the 90b. God bless government efficiency!

Mon, 10/29/2012 - 13:29 | 2928319 slackrabbit
slackrabbit's picture

i will buy houses at a 90% discount. anything higher is too risky...

Mon, 10/29/2012 - 16:15 | 2928796 Offthebeach
Offthebeach's picture

I grew up in my grandfather's house, a large Tudor in Black Rock, Connecticut. He got it during the Depression for back taxes only.
Detroit is the future. Free house with $6,000 yearly taxes.

Mon, 10/29/2012 - 13:41 | 2928341 NorthPole
NorthPole's picture

It might be a good opportunity to grab some urban land, if it's really discounted 53% that is. The land just sits there and doesn't shout it's hungry, as we say in Poland. The risk, of course, is that the gubbermint will slap you with frivolous taxes and then you're fucked - no way to pack up the land and move it offshore.

Tue, 10/30/2012 - 16:30 | 2932655 WojtekSz
WojtekSz's picture

yeah, check the prices before they got discounted ;)

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