A month ago we warned [5] that loan delinquencies in Spain were bad and getting worse at a concerning rate. The most recent data update, which revised that 'bad' print to absolutely dismal, has broken records for just how ugly things are for Rajoy and his fellow countrymen. Spanish bank loan delinquencies rose to an all-time (50-year) record 9.86% with the last four months seeing simply unprecedented acceleration in the rate of bad loans. Numerically, this means that an absolutely whopping €172 billion of the €1.7 trillion in Spanish financial assets is now money bad, and will no longer generate cash flows. This amounts to about 17% of total Spanish GDP. In GDP-equivalent terms, this would be equivalent to $2.5 trillion in US bank loans being "bad." Which, when one cuts all the prevarication and lies, is probably what the true status of the US financial system is. Add to this the now relentless deposit flight which is depleting Spanish bank coffers and one can see why the European credit death spiral is very aptly named.
Spanish bank bad-loan percentage...
[6]
Elsewhere, as Bloomberg calculated [7], the full impact of the European crunch is most evident when observing deposit outflows, which now amount to a stunning $425 billion out of Spain, Portugal, Ireland and Greece in the past 12 months. The fragmentation of credit and a two-tiered banking system continues to block any hopes of growth as companies' funding costs in peripheral nations suffer contagiously from their sovereigns' deterioration.
The Deposit Flight That Could Undermine The Euro...
Via Bloomberg [7]:
Financial disintegration along national lines “caps the benefits from economic and financial integration” that underlie the common currency, the IMF wrote in an April report. The disintegration can fuel a cycle of deteriorating economic conditions and weakening banks, said David Powell, a Bloomberg LP economist based in London.
"The financial divergence is a symptom of the underlying economic divergence, but they feed on each other, making it harder to break out of,” Powell said. “Until companies and individuals are convinced that the euro will survive, they won’t invest in the periphery, and that will keep funds away."
...
Spanish bank deposits fell 7 percent from the beginning of January through the end of July, compared with a 4 percent drop the previous six months. The decline in Portuguese savings accelerated to 6 percent from 1 percent, while Irish deposits fell 10 percent compared with almost no change in the last six months of 2011.
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"We’re still left with very big political questions about who pays for all this, how the backstops work and so on," JPMorgan noted, "The proposals are going to be quite difficult for quite a lot of member states. It’s going to be a difficult road ahead."