Spain Appears Unsure What A "Bank Bailout" Means

Tyler Durden's picture

Spain's banking system bailout is quickly becoming farcical. According to the WSJ this evening, Spain is to require its banks to set aside more provisions (between EUR20 billion and EUR40 billion) in an effort to overhaul the country's financial sector. This additional need for reserves (or provisioning) puts yet more pressure on the banks' balance sheets as it comes on top of the already EUR54 billion that has been set aside from February. Interestingly the EUR20-40 billion still falls dramatically short of Goldman Sachs' estimate of an additional EUR58 billion that is needed to cover reasonable loss assumptions. We can only assume that the game is to create as large a hole as is possible without tipping the world over the brink and then fill it with the state funds a la TARP (as Rajoy has indicated will be the case). It is fascinating to see us drift from the 'denial' phase to the 'recognition' phase slowly but surely (though still miserably under-capitalized) with the amazing arrogance that given the state is the only entity capable of issuance it will fund these shortfalls. So, in a nutshell: the Spanish banks got EUR352 billion (via LTRO and loan repayment) and are left with only EUR80 billion (after deposit outflows and sovereign reach-arounds); did not use this low risk-premium period to raise capital on the public markets; are now seeing the holes in their balance sheets exposed as being bigger by the week; but will be 'fulfilled' by a sovereign's issuance of debt to inject into an ever-increasing black hole of residential and developer loan delinquencies in Spanish banks. Way to go Rajoy - ECB's LTRO carry trade tied the banks more closely with their sovereigns and now the sovereign is directly involved with the banks - this will all end well, we are sure.


From UBS - Where the money goes in Spain

In Chart 21 we update the chart of the sources and uses of incremental funding in Spain in recent months.

The rise in ECB use of €270 billion since June 2011 has been met with a fall in loans outstanding of €82 billion, by our estimates (€64 billion reported to February then the same rate of decline in March and April). Uses of funds have included:

  • The €52 billion excess of maturities over debt issuance;
  • A reduction in private market repos of €74 billion to February
  • An outflow of deposits of €55 billion to February, assumed to have continued at the same pace to April
  • And the €60 billion rise in government bond holdings over June-January, with an assumed increase in March and April in line with the prior monthly run rate

This leaves the system with €80 billion yet to be used. We believe this significant sum could be a support for the government bond market in the near term. However, we also see the elevated ECB use overall making it less likely the system (and, by extension, the sovereign) will be able to return to the public markets in sufficient size to meet maturities and incremental issuance from non-domestic, non-official sources in coming months.


And from Goldman Sachs - Comparison of Goldman's and Royal Decree Law (Spain's) loss estimates from February:


We can only assume that in some insane world, the remaining EUR80billion of LTRO on the Spanish bank's books will ponzi itself into buying Spain's newly issued debt providing Spain with the cash to fund the shortfalls in capital that Goldman (and now even Rajoy) is realizing are gaping wider.

Who else do they think is going to buy that debt to fund this bank bailout?


Is it any wonder that Spanish spreads are near record wides once again:


But have no fear for they plan on announcing a bad-bank to remove impaired assets from the banks books and place them in some SIVs (yet more asset depletion at the banks and balance sheet encumbrance for Spain).

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francis_sawyer's picture

 Spain Appears Unsure What A "Bank Bailout" Means:


 It's a big "NADA tortilla"... I hope that helps...

SilverTree's picture


Xkwisetly Paneful's picture

Spain also seems unsure of what fuera de control el gasto means.

No fear, eliminate the military and raise taxes and all will be well.

Oh wait they already did that.

Money for nothing and chicks for free. 

Big government liberal socialism in epic fail mode the world over as the once most prosperous places on earth are mostly destitute on the bottom line and places like Cook County, Ill don't have militaries at all.

Popo's picture

It's awfully nice of those Spanish serfs to empty their pockets for the banking elite.   What a generous people.

Joe The Plumber's picture

Xenofrog you are so busted. Your personality and rant style shines right thru ur new avatar

The Alarmist's picture

Wonder what kind of move in Swissy we can expect from EUR 80B.

greensnacks's picture

Or Gold. How much will they sell to raise the fiat they need?

Eireann go Brach's picture

Overheard in Ireland..welcome to the party you Spanish cunts!

Element's picture

So, ... not a "management problem" then?

Shocked! ... shocked I say!

the 300000000th percent's picture

I wonder if it will take as long as Greece?


CryingBear's picture


q99x2's picture

Oh no not Spain. We know what a bank bailout is. Tell them not to do it. Help don't put us through it again.

midgetrannyporn's picture

The spanish banks should just lend each other the money on a zirp neg-am eternal maturity basis.

zerotohero's picture

bow to your new overlords.

machineh's picture

'ECB's LTRO carry trade tied the banks more closely with their sovereigns and now the sovereign is directly involved with the banks - this will all end well, we are sure.'

Lifeguards are taught, over and over, that a panicked drowning swimmer will do everything possible to climb on top of you, and thus drown you both.

Soon Rajoy will be quoting the jaunty shade of Frank Roosevelt: 'Hey, we only owe it to ourselves!'

Joe The Plumber's picture

I dont think the spanish are as smart as that . This is not a sophisticated stunt but poorly thought out policy.

Sometimes if it looks stupid it is just stupid and not a sophisticated plot

An italian legislator was shown not to know who standard and poor were, or what a credit agency does . Europeans are not as sophisticated as they like to think they are

macholatte's picture



A common mistake that people make when trying to design something completely foolproof is to underestimate the ingenuity of complete fools. - Douglas Adams

midgetrannyporn's picture

It is a well-known fact that those people who must want to rule people are, ipso facto, those least suited to do it. - Douglas Adams

sunaJ's picture

Time is up.  Or as they say in German: SHITTERGEET OFFOV ZEEPOT!




machineh's picture

'The remaining EUR80billion of LTRO on the Spanish bank's books will ponzi itself into buying Spain's newly issued debt providing Spain with the cash to fund the shortfalls in capital that Goldman (and now even Rajoy) is realizing are gaping wider.'

Thanks to the miracle of fractional reserve lending, EUR 80 billion of capital can support EUR 800 billion of new lending.

Enough to last at least until 2013 ... ;-)

StrictlyNumbers's picture

Why dont they just print up some Merkel bucks and recapitalize the banks? 


StrictlyNumbers's picture

or they could just keep rehypothecating that euro 80 billion until its enough 

Cult_of_Reason's picture

This is surreal. Really bizarre.

Hi Ho Silver's picture

Welcome to the nuevas edades oscuras.

centerline's picture

Haven't we seen this story before?  Deja Vu seems appropriate here.

mammoth mo's picture

Dear Spain:

Prepare for the banana in the tailpipe.


Love Greece

Acorn10012's picture

Only after dinner and drinks.

holdbuysell's picture

Sheezus. 20% of the LTRO went to the ongoing bank run.

donsluck's picture

Get out while you can. The dollar is king for a day, yields are negative and there is no reason not to hold cold hard physical CASH.

Joebloinvestor's picture

So when is the next Spanish election?


The Alarmist's picture

Spain is not so far removed from its last civil war, so elections are not the only likely outcome.

lolmao500's picture

Life is like digging for gold. Some find gold at the first try, some have parents with gold mines, some try all their lives and never find any gold and for most people, they just find enough gold to live a little before dying.

Freewheelin Franklin's picture

Let the fuckers eat cake.

chump666's picture

Ah sh*t two fronts (Europe and China) closing in on the point of market singularity.  Prepare.

from wires:

China's ruling Communist Party is seriously considering a delay in its upcoming five-yearly congress by a few months amid internal debate over the size and makeup of its top decision-making body, sources said, as the party struggles to finalise a once-in-a-decade leadership change. Should this happen it indicates that the internal wrangling within the party is far from complete. It would be fuel for the China bears and risk negative generally.

chump666's picture

St Korea you are on your own with this one re: China looking politically like a meltdown is about to hit

0227 GMT [Dow Jones] South Korea, jointly with China and Japan, needs to buy Spain's treasury bonds in a proactive move to contain the euro-zone sovereign debt crisis, the Bank of Korea's new policymaker Moon Woo-sik says

Desperation.  Time to take the pain and deal with it.

icanhasbailout's picture

The Spanish word for bank bailout is bohica

donsluck's picture

Huge bank runs to the tune of 20% of LTRO. Cash is leaving the ponzi, and due to negative yields, being parked in safe deposit boxes world wide. A stealth global bank run, very interesting. Join in while you still can, as the dollar will be king until the Euro is toast.

Joe The Plumber's picture

Negative yields are a reason not to own cash dumazz. I think i know what you are trying to say though

Peter K's picture

Hey, but at least Euroland is fixed :)

genericwaz's picture

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