Is Another Spanish Bank About To Bite The Dust?

Tyler Durden's picture

Authored by Don Quijones via WolfStreet.com, 

Stockholders and junior bondholders fear another “bail-in.”

After its most tumultuous week since the bailout days of 2012, Spain’s banking system is gripped by a climate of fear, uncertainty and distrust. Rather than allaying investor nerves, the shotgun bail-in and sale of Banco Popular to Santander on Tuesday has merely intensified them. For the first time since the Global Financial Crisis, shareholders and subordinate bondholders of a failing Spanish bank were not bailed out by taxpayers; they took risks in order to make a buck, and they bore the consequences. That’s how it should be. But bank investors don’t like not getting bailed out.

Now they’re worrying it could happen again. As Popular’s final days showed, once confidence and trust in a bank vanishes, it’s almost impossible to restore them. The fear has now spread to Spain’s eighth largest lender, Liberbank, a mini-Bankia that was spawned in 2011 from the forced marriage of three failed cajas (savings banks), Cajastur, Caja de Extremadura and Caja Cantabria.

This creature’s shares were sold to the public in May 2013 at an IPO price of €0.40. By April 2014, they were trading above €2, a massive 400% gain. But by April 2015, shares started sinking. By May 2017, they were trading at around €1.20.

But since the bail-in of Popular, Liberbank’s shares have seriously crashed as panicked investors fled. Scenting fresh blood, short sellers were piling in. On Friday alone, shares plunged another 17%. At one point, they were down 38% before bouncing at the close of trading, much of it driven by the bank’s own share buybacks:

In the last three weeks a whole year’s worth of steadily rising gains on the stock market have been completely wiped out. The main causes of concern are the bank’s high risk profile and low coverage rate. By the close of the first quarter of 2017, Liberbank’s default rate had reached 13%, over three percentage points higher than the national average (9.8%), while its unproductive asset coverage rate was just 42.1%, compared to 47% for Banco Sabadell, 48% for Bankia, 50% for CaixaBank and 55% for Unicaja.

Worse still, the vast bulk of the bank’s unproductive assets are real estate investments. After Popular, it is the Spanish entity with most exposure to toxic real estate assets, according to the financial daily El Confidencial — a remarkable feat given the bank already had the lion’s share of its impaired real estate assets transferred onto the balance sheets of Spain’s “bad bank,” Sareb.

It’s not just the bank’s shares that are feeling the pressure. With the memory of what happened to holders of Popular’s junior, subordinate and convertible debt still fresh in their mind, investors are divesting their exposure to Liberbank’s subordinate debt. On Friday alone the bank’s most recent issuance, dating back to March 2017, generated losses of 9.8%.

Liberbank’s management has responded the only way it can — with a slew of denials. The bank is nothing like Popular, it says. It is solidly solvent and its deposits are safe, which is probably true: even the deposits of Popular’s customers are now safe despite the fact the bank had hemmorhaged €18 billion of deposits in the last few weeks of its truncated existence. It was this frantic run on deposits that ultimately sealed its fate, prompting the ECB to conclude that the bank was “failing or likely to fail.”

Banco Popular’s demise is a stark reminder that Europe’s banking woes are far from resolved, despite the trillions of euros thrown at them. “The message the market is sending is that you have to buy solvent banks and stay away from those that pose high risks,” said Rafael Alonso, an analyst at Bankinter, one of Spain’s more solvent banks.

Another Spanish bank that could be considered to pose high risks is Unicaja, the product of another merger of failed cajas that is (or at least was) scheduled to launch its IPO some time in June or July. As things currently stand, the timing could not be worse. The greater the uncertainty over Liberbank’s future, the lower the projected valuation of Unicaja’s IPO falls. Before Popular’s forced bail-in and acquisition, the Unicaja was valued at around €2.3 billion; now, just days later, it’s valued at less than €1.9 billion. If the trend continues, the IPO will almost certainly be shelved.

As for Liberbank, if things don’t improve soon and investor nerves aren’t steadied, it too could find itself on the ECB’s Single Resolution Board’s chopping board. Perhaps it too will be sold for €1 to a much larger bank that, like Santander, is able to raise billions of euros of new funds at the drop of a hat, with other too-big-to-fail banks like UBS and Citibank more than happy to lend a helping hand. And just like that, another smaller bank would bite the dust while the biggest banks get bigger and ever more dominating in the market.

Many Banco Popular investors wiped out. Taxpayers off the hook. What it means for Italy. Read…  “Bail-In” Era for Europe’s Banking Crisis Begins

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PontifexMaximus's picture

Liberbank? Who cares. Will be taken over and business as usual. Nothing to see here.

Justin Case's picture

Deutsche bank can take em over NP.

Haus-Targaryen's picture

I predict Santander gobbles up this one up as well.  

What's the worst that could happen? 

Justin Case's picture

I predictall execs will be driving Crysler products 8>))

auricle's picture

I love the smell of contagion. 

bamawatson's picture

author sure has a set of 'quijones'

Tall Tom's picture

 

 

CONTAINED I TELL YOU...CONTAINED...Contained...contained...contagion??? CONTAGION?!?... Oh shit.

rmopf2010's picture

https://oinsurgente.org/2017/06/10/breaking-the-bank/

 

Breaking the bank

"The crisis in Portugal’s biggest bank, Caixa Geral de Depósitos, and how it explains the crisis the country itself has faced in last few years.

"Portugal was one of those countries. In 2011, the “troika” of the IMF, the European Union and the European Central Bank came to the rescue with a €78 billion bail-out package with €12 billion for the banks to use to recapitalize themselves. They badly needed them. Not only they were the largest funders of the debt splurge the government of the day, led by then-Prime Minister José Sócrates of the Socialist Party, currently under investigation for corruption, tax fraud and money laundering, but the “austerity” prescribed by the “troika” and applied by the PSD/CDS coalition once an election threw Sócrates out of power also meant that there was no government –i.e., taxpayers’ – money for the “public-private-partnerships” in infrastructure Portuguese banks had become accustomed to invest in at almost no risk to themselves, as well as other shady deals. To further complicate things, Portuguese banks were themselves heavily indebted, both to each other and abroad, and so they to felt the noose tightening around their necks."

max2205's picture

Spanish deposits moving to Germany at lightspeed 

seewhogivesafuck's picture

If Millenium BCP buys Montepio Geral I'll be off from montepio and I'll join Gobulling(banco carregosa)

Jubal Early's picture

I went by an ATM at a Banco Popular in Ronda this evening (one hour ago) and got out €100.  No problemo.  We keep this account because it is where taxes, electric and water are automatically deducted from, and it is such a pain to deal with these kinds of issues in Spain that we maintain the account only for that reason but with a balance never much over €1000.

Yog Soggoth's picture

Thats the plan one world, one currency, one bank. If I had any money in those places I would be in line to get my assets out. What part of ," high risk profile and low coverage rate," don't they get. Wonder how bitcoin is doing there?

Justin Case's picture

Damn, I had bets on Portugal.

rmopf2010's picture

Don't Bet !!!!

MSM puts Portuguese serfs in such a deep sleep, they would only notice systemic bank failure after 3 attempts to withdraw money from ATMs

krispkritter's picture

Any Spiderman towels left?

Insurrexion's picture

Spanish and Italian banks failing and dying like a bad melodrama.

Greece balking at debt payments.

Stupis French are led by a banker.

British political class in crisis while terrorist murders London.

Europe is where the hurricane has begun and the power elite grasps for straws.

Justin Case's picture

Draghi has run out of bonds to monetize. Oh what to do? Time to call the Bernak and ask about helicopter money I tink.

Justin Case's picture

merkans rigged the election. There is no proof but it must be them, right? ya know the hackers, doz guys!

secretargentman's picture

Death to the fraudulent fractional reserve banking system! 

assistedliving's picture

keep buying banks for €1 and presto, you're TBTF

Ban KKiller's picture

Santander accountants will approve of asset purchases...

BritBob's picture

Time for the Gibraltar distraction ploy to be put in operation?

 

From the top down: -

 

Spanish king uses the address of the UN demand to Great Britain return Gibraltar(RT 22 Sep, 2016 )

PM  Rajoy- Gibraltar "this is the such territory in Europe and that affects to our own integrity territorial", said the Mr Rajoy, saying that Britain had "ignored the mandate" of the Assembly General of the UN. (Daily Telegraph, 26 September 2013)

Foreign Minister Dastis: « I am for "Gibraltar, Spanish", but you have to be smart. (8 feb, 2017 copeaxarquia.es).

Gibraltar - Some Relevant International Law: https://www.academia.edu/10575180/Gibraltar_-_Some_Relevant_Internationa...

 

Ah well. Okay for the patriots that have been indoctrinated. 

 

 

shovelhead's picture

Still pining for the British Raj, Bob?

thisandthat's picture

Some light into this special snowflake's money laundering safespace:

Effectively, places like Gibraltar, alongside other UK-managed territories such as the Cayman Islands, Bermuda, Jersey, Guernsey, the Turks and Caicos Islands, and the British Virgin Islands, were transformed into a giant global money laundering service. Local branches of the major London banks were established in each territory, taking in vast amounts of criminal wealth, which could then be safely transferred to each bank’s parent branch in London.

 

Gibraltar is a major part of this criminal network. John Christenson, former Economic Advisor to Jersey, itself a major UK-run tax haven, noted that the instruction from senior partners in London was to direct the really, really dodgy business away from Jersey to Gibraltar…[we] regarded Gibraltar as totally subprime. This was where you put the real monkey business."

 

Spanish newspaper ABC reported that Gibraltar was home to no less than 15 organized crime gangs connected to drug smuggling, money laundering, and the Russian mafia.

 

Gibraltar refuses to cooperate in investigations into money laundering, tax evasion and organized crime"

 

As Richard Murphy of Tax Research UK has pointed out, Gibraltar “is funded by its activity as a tax haven and center for offshore gambling. The first activity is intent on undermining the global economy and the legitimate tax revenues of democratically elected governments. The other is wedded to destroying individual lives. Quite emphatically, this is a place that is dedicated to undermining well-being." It is time it was closed down.

https://www.rt.com/op-edge/384322-gibraltar-uk-taxes-money-laundering/

ToSoft4Truth's picture

Muslim banks will be replacing the busted out Spanish banks. 

BandGap's picture

Where is Charles Martel when you need him?

"Charles reformed his troops expecting another attack, but to his surprise it never came as the Umayyads continued their retreat all the way to Iberia. Charles' victory at the Battle of Tours was later credited for saving Western Europe from the Muslim invasions and was a turning point in European history."

https://www.thoughtco.com/muslim-invasions-charles-martel-2360687

Haitian Snackout's picture

They'll only have to change the name to Sandtender

Voice of insanity's picture

If it's got the word 'popular' in the name, then it's toast!

Bam_Man's picture

Whenever I see a waterfall chart pattern like that, it reminds me of COMEX Silver.

I am Jobe's picture

Orgasm . Waiting for the US banks to start merging. JPM is waiting for the Orgasm to happen. Slow train wreck .

Bunga Bunga's picture

Don't worry, a domino collapse ends quickly and taxpayers have to clean it up anyway. Nothing to see here. 

GooseShtepping Moron's picture

Speaking as someone who used to while away the halcyon days of my youth reading books on number theory for the sheer Platonic enjoyment of it, I can tell you that the curve of that bond price graph looks very much like a convergent sum suddenly punctuated by an exponential decline. This is instructive in what it says about the investor mindset and the actual value of the bank.

What it means is that during the convergent phase, the rate of return on the bonds was steadily eroding in a logarithmic manner, implying that as time tended to infinity it would require an ever larger investment of capital simply to garner the same absolute amount of profit. And furthermore, since that logarithmic advance is monotonic, there isn't even any volatility to trade, so there'll be no B-ingTFDs in this space, just a slow ride to parity. Is this shape merely a coincidence, or is there some deeper rationale behind the mathematical expression?

Indeed there is such a rationale. This is precisely the shape the curve would assume if the price were being dictated by the following considerations: 1) The bank had no real growth potential but; 2) It could still be managed as going concern by anyone interested in owing it and servicing its existing loan book, however; 3) Neither the hot money flows nor the legal regime much tolerate banks that do not continue to write new loans and; 4) In spite of the nonexistent growth potential, the bank's bare viability was still being used as a selling point wherewith to pitch the bonds to an ever diminishing field of greater fools. To use an analogy, it's as if the traders found an old but still healthy draught horse and, instead if hitching him up to a cart where they might get some useful work out of him, decided to to take him out to Churchill Downs. Then they donned the uniform of jockey, mounted up, and proceeded to whip him into frenzy until he had no choice but to gallop down the track. And even as the poor beast was flecking at the nostrils and falling far behind the thoroughbred racers, the jockey continued to call for bets from the crowd by saying, "But look at how strong and solid he is! Surely he is a good horse, no?" This until the moment when the exhausted and abused horse finally collapsed in the mud.

The "no growth" reality is absolutely toxic to investment psychology and the whole Wall Street model which demands that every negotiable security must "perform," even to the extent that the very nature of the business and its actual and existing circumstances must be systematically falsified. Nowadays every business must pretend to be something it isn't. There are no organic growth opportunities in this world, which is already saturated with debt and burdened by declining demographics; but there are plenty of firms which could still provide useful services and gainful employment if they were allowed to assume a steady state and freed from the imposition to grow. No amount of beating the draught horses will turn them into racers, but it can and will eventually destroy them. That is why the financial sector must be shut down. There is nothing for it to do anymore except chase its own self-inflated bubbles, which only expand by cannibalizing the preexisting asset base. This is highly destructive, wasteful, and unwise, and it only exists so that a few oligarchs can enrich themselves to unimaginable levels while the rest of the world is inexorably ground into oblivion.

The logarithmic curve followed by a crash is the mathematical thumbprint of enforcing a growth paradigm on a no-growth world. Look for it at the scene of many a financial crime in the years to come.

max2205's picture

Who ipo's at 0.40? 

Bam_Man's picture

A bank that's really worth 0.00.

montresor's picture

What kind of an idiot would make a deposit in a Spanish bank? Spain is a shithole.. The water doesn't run in Spain.. The streets and roads are littered with garbage of all types..  Walls and fences in Spain are adorned with shards of broken glass because barbed wire would cost actual money.. So they smash the glass on the ground and dip it into the mud they use as building material.. On the street it's all gypsys trying to rob you.. All the drunk Brits and Nordics who vacation in Spain and lay tits up on the beach aren't depositors in Spanish banks, but their cab driver is...  See that?  Spain is a horrifyingly poor country who just wants to sell access to it's Southern beaches in the Costa del Sol to the coldwater countries..  That's all they do...  Is there a Spanish automobile? Is there a Spanish made passenger jet? Is there a Spanish made smartphone? Is there any new technology coming out of Spain? No. They're taking a siesta while the British tourists pay their bill at the hotel with no running water..

TeraByte's picture

Unfortunately you got much of it right. Spain used to be the South´s Germany before EU turned it to into this swamp.

VWAndy's picture

 Jump you Fuckers.

Evan Wilson's picture

Is this bad?

They just need to print MOAR!!!!

On a more serious note, it looks like the replay for 2008/2009 crisis might be starting in Europe.

idontcare's picture

Santander is drooling to p/u more assets at one euro.