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EU Expects Spanish Bank Bailout Loans To Be Double The €40 Bn Previously Disclosed

Tyler Durden's picture


While the Reuters story, which we noted earlier, and which speculated that a no-strings attached bailout of Spanish banks may be coming courtesy of a German stealth funding of the nearly empty Spanish bank bailout fund, has been making the rounds over and over, the latest incarnation of the underlying narrative, brought to us courtesy of the FT, has a novel twist: "EU officials are also debating the size of the loans needed. Senior Spanish banking executives have put the figure at about €40bn, but EU officials have been looking at plans that are at least double that, according to people briefed on the discussions." In other words, just as we speculated, Goldman's big picture estimate of Spanish bank funding needs was woefully inadequate, and once the dirty truth is uncovered, it will become apparent that losses, which at this point are nothing more than capital shortfalls from deposit runs, are far, far greater than anyone speculated. It also means that the disconnect between the European reality, and what the media and politicians are spoonfeeding the gullible public, has hit unprecedented levels. Finally, once Germans once again realize they have been lied to, what happens then: will they simply fork over the cash as rumored, or will they finally say enough? According to this lead article in German Welt, the answer is not looking too good for the broken European monetary experiment.

From the FT:

Spanish officials and bank regulators are confident that the IMF will conclude that the recapitalisation needs of the country’s banks – principally the former cajas that make up Bankia, Catalunya Caixa and NovaCaixaGalicia – will be more modest than many foreign analysts assume.


Despite the urging of Brussels and Paris, officials said direct bailout loans to troubled banks – bypassing the Spanish government – have been ruled out. Regulations for the current €440bn eurozone rescue fund and its permanent €500bn successor forbid such direct capital injections and changing the rules would take too long to come quickly to Madrid’s assistance.


Instead, one of the options under consideration is to provide the bailout aid directly to Spain’s bank rescue fund, known by its Spanish initials Frob.


If required, the European Financial Stability Facility, the eurozone’s bailout fund, could rapidly inject bonds directly into Frob.

Naturally, the biggest problem with this scheme, is that it simply plugs a leaking vortex: as more Spanish real estate losses bubble to the surface, and more deposits are withdrawn, more, and more, and more cash will have to be provided by Germany. And today's initial doubling of bailout estimates is just the beginning: the final cost before German taxpayers finally revolt in disgust with what is nothing but a direct Spanish bank bailout, will be orders of magnitude higher. And so the sunk costs of Europe's continental bailout will continue to soar.

But why?

“Eurozone member states have an incentive to design a programme that would emphasize banks and be ‘conditionality light’ to facilitate Rajoy’s ability to manage his domestic constraints,” said Mujtaba Rahman, a Europe analyst at the Eurasia Group risk consultancy. “The longer the Spanish situation drags out, the greater is the risk that Italy will also come back into play.”

And there you have it: at the end of the day, it is all about preventing delaying the realization that the Italian financial sector is just as broke as that of Spain.

Needless to say, a Spanish FROB refill won't halt the crisis. It will merely delay it. And the outcome will still be the same. But at this point delaying the inevitable collapse is really the only option Europe has. If it means some more Germans lose what is left of their wealth, so be it.

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Wed, 06/06/2012 - 13:40 | 2500053 Ahmeexnal
Ahmeexnal's picture


Meanwhile, if Stockton goes, so does Kali:

Stockton, Calif. may file for bankruptcy if it is unable to reach a deal by June 25 to avoid insolvency, according to a statement from the city council. The city on Tuesday approved a resolution 6 to 1 to authorize the city manager to seek protection under chapter 9 bankruptcy code under which municipalities can reorganize their debt. "We have hit the wall; we are insolvent. This is the action that we must take to keep the services that are important for the safety and health of our citizens. We have to prepare. We cannot wait to act. We have to do what is best for the citizens," said Mayor Ann Johnston in a statement.

Wed, 06/06/2012 - 13:41 | 2500086 Silver Bug
Silver Bug's picture

All aboard the QE to infinity train. Get ready for a bumpy ride.



Wed, 06/06/2012 - 13:50 | 2500134 Chris Jusset
Chris Jusset's picture

There's absolutely no end in sight:

"Naturally, the biggest problem with this scheme, is that it simply plugs a leaking vortex: as more Spanish real estate losses bubble to the surface, and more deposits are withdrawn, more, and more, and more cash will have to be provided by Germany. And today's initial doubling of bailout estimates is just the beginning: the final cost before German taxpayers finally revolt in disgust with what is nothing but a direct Spanish bank bailout, will be orders of magnitude higher. And so the sunk costs of Europe's continental bailout will continue to soar."

And after Spain fills its belly with German taxpayers' free money (with NO STRINGS ATTACHED), Italy will be next ... with a much larger tab.  And after Italy?


Germany has just opened Pandora's box with absolutely no end in sight.

Wed, 06/06/2012 - 13:51 | 2500153 jekyll island
jekyll island's picture

$80 billion euro to start?  LMFAO. 

Wed, 06/06/2012 - 13:55 | 2500173 nope-1004
nope-1004's picture

No, $40 billion to start.  $80 billion estimated.  Take starting #, multiply by 2, then add 250%.  Once you then divide by .2, we are close.  $1,000,000,000,000  LOL.


Wed, 06/06/2012 - 14:54 | 2500450 knukles
knukles's picture

I am so sick of this vaunted superior cultural horse shit from Europe.  If everything is so better there, why the fuck can they not do basic math?

Wed, 06/06/2012 - 15:48 | 2500660 machineh
machineh's picture

A superior culture is not constrained by trivialities such as math. /sarc

Wed, 06/06/2012 - 19:42 | 2501425 icanhasbailout
icanhasbailout's picture

over there, when someone lays out a really stinky fart - and I mean really stinky, the kind that makes your eyes water while causing your sinuses to collapse, and leaves an unmistakable sulfur-methane coating on everything within blast radius, the utterance of "Oh. My God." in the soft, slow staccato from somewhere in the room, the vertigo and overwhelming urge to take a shower and wash your clothing immediately  - they can be sophisticated enough to appreciate the texture of the experience, and not quite so concerned with things such as who to blame it on, oh and we want another E40 billion

Fri, 06/08/2012 - 14:00 | 2508003 knukles
knukles's picture

A thing of beauty  :)

Wed, 06/06/2012 - 15:09 | 2500518 jmc8888
jmc8888's picture

If you mean one bank in Spain, Banco Santander, you're probably right.  But what about the rest of the Spanish Banks, cajas, developers, municipalities, and sovereign?

Then what about the rest of Europe?

/.2 a couple more times.



Wed, 06/06/2012 - 22:50 | 2502023 Buck Johnson
Buck Johnson's picture

So they mean to tell us the 4th biggest economy in the EU don't have the 40 or 80 billion to bailout it's banks, tells me one thing that you hit upon.  THE MONEY THEY NEED IS TO THE TUNE OF HUNDREDS  OF BILLIONS IF NOT 1 TRILLION!!!!!!!!!  I think those rumors of Germany doing this is just that rumors, because they have to know that what they do is not only throwing money into a money pit, but since it goes to the banks directly and not the Spanish govt., the Spanish govt. could say we aren't responsible, sue the bankrupt banks.  Also Germany has to know that they need alot more money than 40 billion or 80 billion. 

This has become a hell hole of trying to delay the inevitable until after the US elections (Bernanke isn't going to give out a QE3, it just  won't happen politically).  They are just delaying the inevitable of the Euro collapse which no matter what CNBC says will crash into the US market like a tidal wave and be felt around the planet.

Wed, 06/06/2012 - 15:06 | 2500504 jmc8888
jmc8888's picture

No stings attached? Why SHOULD there be?

German taxpayers' money paid to Spanish banks mean where should the strings be?  On the spanish people?

Of course if Germany doesn't pay, their exports and banks collapse. 

So looks like to me once again, both the German people AND Spanish people are being screwed for Spanish AND German banks.

See a trend?


You are right about the pandora's box.  Once they get the ability to debase the currency for the BANKS, their currency will collpase.




Wed, 06/06/2012 - 21:02 | 2501715 philipat
philipat's picture

What is really disturbing is that the possibility of allowing these bankrupt Banks to fail is not even mentioned any longer. The era of Central Planning is truly upon us. I guess that capitalism will henceforth be regarded by the "Progressives" as some quaint old-fashioned notion in history?

Wed, 06/06/2012 - 13:39 | 2500065 kahunabear
kahunabear's picture

I just want to be the first to thank Jon Hilsenrath for single handedly solving Europe's debt and unemployment problem. He is truly a great man. /S

Wed, 06/06/2012 - 13:42 | 2500093 nobusiness
nobusiness's picture

Power of the printing press

Wed, 06/06/2012 - 13:40 | 2500085 Conman
Conman's picture

And the world's markets rejoice. Wait what happened? nothing? oh yeah. Tomorrow wee hear the bearded one say he is accomdative to more easing pending data blah blah blah and thats why we erased an insalely horrible NFP print? RETARDO markets.

Wed, 06/06/2012 - 13:41 | 2500090 kengland
kengland's picture

Silver crashing for some reason. Haven't figured it out

Wed, 06/06/2012 - 13:52 | 2500159 jekyll island
jekyll island's picture

Time for the afternoon JP Morgue raid. 

Wed, 06/06/2012 - 13:59 | 2500201 B-rock
B-rock's picture

Um, because it followed gold and ES...

Wed, 06/06/2012 - 14:04 | 2500220 Beevreetr
Beevreetr's picture

More sellers than buyers.


Wed, 06/06/2012 - 13:43 | 2500096 Chief KnocAHoma
Chief KnocAHoma's picture

Won't be long before John Candy is standing at the front gate of Europe:

"Sorry folks... Park's closed...The Moose out front should have told ya." 

Wed, 06/06/2012 - 13:42 | 2500098 BlueStreet
BlueStreet's picture

Double the problem, double the solution, it's a wash.  Let's go S&P 1350, the short finger is getting itchy.  

Wed, 06/06/2012 - 13:43 | 2500107 A Man without Q...
A Man without Qualities's picture

Who'd have thought that building hundreds of golf resorts in the desert miles from anywhere would have caused such problems.

I blame Germany - they should play more golf. 

Wed, 06/06/2012 - 13:43 | 2500109 taraxias
taraxias's picture

The Germans will fold, like they have consistently done the last four years.

It's THEIR banks they are trying to save, not the Spanish ones.

Wake up.

Wed, 06/06/2012 - 13:43 | 2500110 columbo
columbo's picture

The definition of insanity is doing the same thing over and over again and expecting different results.  The only way to solve Greece, Italy, Spain, etc. is to sell someting that they have of value to investors to knock down their debt.  They all have great vacation spots that could be carved out and solved for a king's ransom.  What else do they all have....seriously???? 

Wed, 06/06/2012 - 14:01 | 2500211 Chief KnocAHoma
Chief KnocAHoma's picture

Spain and Italy have some hot women... Greece... not so much.

They could run a two for one special. Give me one Spanish woman and one Italian, preferably one that wasn't passed around a bunga bunga party, and I'll ask Ben to print you a few trillion in fiat.

Wed, 06/06/2012 - 13:44 | 2500111 gojam
gojam's picture

Recipriversexcluson,- a number who’s existence can only be defined as being anything other than itself.”

- Douglas Adams

Wed, 06/06/2012 - 13:47 | 2500136 CrashisOptimistic
CrashisOptimistic's picture

This rumor is not addressing the reality that this is money LOANED to Spanish banks, not given.

Those banks will then see their reserves ratio destroyed by the extra debt.

It can't happen this way.  The rumor has to be wrong.

Wed, 06/06/2012 - 15:23 | 2500559 Matt
Matt's picture

So to maintain, let's say, a 5% reserve ratio, the Spanish government will have to deposit $5 for every $100 in money lent to the banks. Presto! dilemna solved. 

Wed, 06/06/2012 - 15:58 | 2500688 optionsman
optionsman's picture

Spanish banks are probably going to issue some form of equity (contingent convertible bonds?) capital for private placement with efsf or what have you. if they loan funds, the issue of subordination will come up and if the new loans will be senior to outstanding bonds then situation will deteriorate for the spanish banks further and beyond the issue of reserve ratio destruction. either way any funds disbursed to the spanish banks is likely to be a subject to substantial risk of loss- might as well do this in the least painful way ie equity.

Wed, 06/06/2012 - 13:50 | 2500149 Abraxas
Abraxas's picture

Germans didn’t whine about southern subhumans when their corporations reaped the benefits of EU all over Eastern and Southern Europe. Now when they completely milked them they  are crying that isn’t fair. Was it fair that in the last 10 years, probably 90% of construction in the periphery was done by the German construction companies? Was it fair that their magnates purchased companies in the Balkans for 99% discount? Fourth Reich, baby!

Wed, 06/06/2012 - 14:19 | 2500285 shovelhead
shovelhead's picture

I think by now the average Fritz on the street has figured out that paying people to buy your goods is not a winning long term business model.

Eurocrats...eh. Not so much.

Forward. Fake it til you break it is the rally cry.

Who's next?


Wed, 06/06/2012 - 17:59 | 2501213 Olympia
Olympia's picture


In reality the Northern Europeans risk of pushing Greece into the broader global community where it is going to be free from investing heavily in its defense of the Eastern gates of Europe and it will bring about the greatest change in the balance of powers that Europe has felt since the collapse of the Berlin war. This time Germany will not be re-united, rather it will has to pay a dear price for its energy security. Netherlands will not become richer; rather it will have to pay from its own pocket in order to save itself from the flood of narcotics and Asian immigrants.

Austria will not be greater, rather it will have to deal with powder-keg named "Balkans" that has markets Vienna's history.


How Northern Europe shoot its leg, in order to satisfy the populist sentiments of an electorate being used to the fairy tales of "bad witches and pious farmers".


Panagiotis Traianou answers to many of the aforementioned questions and gives a proper solution on his article entitled “GREECE RANKS AMONG THE WITCHES OF SALEM”



Wed, 06/06/2012 - 13:51 | 2500154 ArrestBobRubin
ArrestBobRubin's picture

DOW's up 225.

Move along, nothing to see here...

Wed, 06/06/2012 - 14:00 | 2500207 WineSorbet
WineSorbet's picture

My new investing strategy.  When Karl Denninger publishes an article with "Here it comes" in the title.  BUY!  BUY EVERYTHING.

Wed, 06/06/2012 - 14:01 | 2500209 BlackholeDivestment
BlackholeDivestment's picture

...ah, so it's a first born German child being burned upon a Spanish Alter, this time around, built by the Suicide Vampire Squid.


zero psi


Wed, 06/06/2012 - 14:00 | 2500210 Dick Darlington
Dick Darlington's picture

Thanks for the article Tyler.


As for the endgame, read this one.Very good, i promise.


Wed, 06/06/2012 - 14:03 | 2500215 WineSorbet
WineSorbet's picture

Seriously folks.  I've been a huge fan of this site for almost 2 years now.  It's the same story over and over.  We're on the brink and then BLAMMO, more printing.  If you haven't learned that then you are pretty slow.  It will eventually collapse but I reckon that the real brink will be quite obvious when it occurs.  Just my 2cents.

Wed, 06/06/2012 - 14:24 | 2500320 shovelhead
shovelhead's picture

When Obama does an E.O. declaring trading in metals a death sentence offense as a crime against the state, you'll pretty much be there.

Until then, it's just noise.

Wed, 06/06/2012 - 14:21 | 2500300 John_Coltrane
John_Coltrane's picture

There's never enough money in a fractional reserve banking system to stop a real bank run and capital flight as we're seeing now.  And that's the problem with Spain, Italy, Greece etc.  There's no trust-nor should there be.  This "loan" from the ECB is like plugging one small hole in a dike and hoping the flood will stop.  To stop the flood, they must restore trust.  But that's impossible.  The impaired/nonperforming RE loans are still on the Spainish banks asset ledger as valued fully (as they are still on BAC, C, JPMs etc).  There's the rub.  Its a solvency problem and always has been.  A nation with 24% unemployment, and a bloated public sector can't repay its debts.  So default already!

Wed, 06/06/2012 - 14:22 | 2500307 barliman
barliman's picture


Time for an afternoon Einsteinian thought experiment ...

Posit:   All European banks are actually insolvent - the proof is in the fractal pattern.

Let's examine some basic parameters:

Bankia was a 2 billion euro problem until someone actually started measuring it. From that point on it was 4 then 9 then 12 then 15 billion euros. At that point, they decided to stop measuring it so it would stop growing (look up the definition of teleological reasoning in my earlier post or Google it and then remember what Einstein said about the observer affecting what is being observed).

Spain was going to refinance its banks by selling bonds to loan sharks and then using the "vig" to capitalize the banks rather than worrying about paying it to the loan sharks. They had to abort this plan to "Greece" their way out of the problem because the EU had slowly but surely caught on to this scam over a two year period.

Spain throws in the towel of self-resolution/cover-up ... but now we see the same fractal pattern playing out for ALL of Spains banks - simply because someone started to actually measure the overall problem.

Waiting in the Eurovision wings is Italy. With regard to discipline & corruption, Italy is to Spain as Spain is to Germany. This is indicative of the amplitude and frequency of the fractal pattern for Italy being significantly larger and occurring on a much faster time scale.

After Italy comes France. After France comes Germany. Visualizing the fractal pattern playing out in a series of overlapping layers, we can extrapolate the time remaining before the EU goose is irreevocably cooked.

George Soros was an optimist. This pattern WILL play out before Labor Day.

As a happier thought: Who wants to see Ron and Rand Paul ask Ben Bernanke at what point Federal Reserve policy with regard to QE, currency swaps et al cross over the line and become a prima facie case of treason under the Constitution?


Wed, 06/06/2012 - 16:54 | 2500913 Ned Zeppelin
Ned Zeppelin's picture

+1 I dig the measurement problem, sort of a Heisenberg Uncertainty principle applied to these morphing "banks."

Also agree in response to this next crisis the Fed will unabashedly confirm who it serves, by unprecedented and radical actions. They will step over the line.  The question is what happens after that.

Wed, 06/06/2012 - 18:57 | 2501339 barliman
barliman's picture


What happens BEFORE that ...

I am going to invoke the Gods or at least shout out,

Tyler !!!

... because while I am no one ...

if Tyler saw his way clear to raise the question of Ben Bernanke engaging in direct debasement of the USD by the Federal Reserve underwriting the European Union's insolvent banks ...

before the ChairSatan testifies tomorrow ... you never know.

It might just give some of the members of Congress the spine to ask Mr. Bernanke,

"Are you going to commit treason by giving the USD to European countries or banks to prevent the natural market process of their bankruptcy?"

That would probably get a few headlines on the evening news tomorrow.


Wed, 06/06/2012 - 14:34 | 2500369 BanjoDoug
BanjoDoug's picture

.... so much blabbering about peripheral details and speculation, like "when the Germans realized they have been lied to...." - total B.S. Journalism....

Those Krauts know exactly what the score is....  their goal is to move all euro gold into their own possession.   Sure, they will garrantee a loan, maybe the first 10-30%, to get a AAA credit rating and a lower % rate, but in return the Krauts will get a huge amount of gold as collateral....  and when default comes, as the Krauts know will happen, they will collect all the gold which will amount to 3x-10x times their original garrantee.... and even then they may not pay their original "garranteed" commitment....

Now is that stupid or NOT ?????  

Wed, 06/06/2012 - 14:40 | 2500393 Tyler Durden
Tyler Durden's picture

Ummm: Germany Has A Generous Proposal To The Broke PIIGS: "Cash For Gold"

Oddly enough one has yet to see EVEN ONE PIIG offer their gold to some German pawn shop.

In fact, the only one doing the blinking so far, is Germany. Now is that stupid or NOT?????

Wed, 06/06/2012 - 18:59 | 2501345 barliman
barliman's picture


Tyler !!!

... while I am no one ...

if you can see your way clear to raise the question of Ben Bernanke engaging in direct debasement of the USD by the Federal Reserve underwriting the European Union's insolvent banks ...

in an article before the ChairSatan testifies tomorrow ... you never know.

It might just give some of the members of Congress the spine to ask Mr. Bernanke,

"Are you going to commit treason by giving the USD to European countries or banks to prevent the natural market process of their bankruptcy?"

That would probably get a few headlines on the evening news tomorrow.


Wed, 06/06/2012 - 15:04 | 2500500 Abraxas
Abraxas's picture

Could not agree more, BanjoDoug. Whatever Germans decide to do will be in their own best interest, but presented as sacrifice.

Wed, 06/06/2012 - 15:22 | 2500560 timbo_em
timbo_em's picture

Question: All annual reports except the last BFA annual report of the Spanish banks have been audited in the past, right?

So what are Roland Berger and Oliver Wyman going to find out? That the last three to four years in executives' offices in Spanish banks have been all about delay and pray and that auditing banks is one giant joke?

Wed, 06/06/2012 - 17:16 | 2501048 PR Guy
PR Guy's picture

Spain is undoubtedly lying. Germany knows it and wants any bailout to have strings so that the sovereign has skin in the game. None of this direct to banks and sovereign gets off scot free when it later discloses the true size of the problem by which time it's too late and the ESM has to keep throwing money down the hole to save the Euro and by God they will save it even if the business case doesn't stack up. This is about politics, power, agendas and egos. Nothing to do with what's best.


Wed, 06/06/2012 - 21:16 | 2501771 chinaboy
chinaboy's picture

The best part is that this is only one of many. I don't even care to know if the Germans pay the money or just print the money.

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