What Oliver Wyman Really Said About Spain's Banks

The 'real' results from Oliver Wyman's stress tests are out, via Bloomberg, and there are some skeptical conclusions at best. The expected loss for Spanish banks under the adverse stress test scenario is €253-274 billion (and EUR 173-194 billion under the base-case). The announced capital deficit under the stress scenario of €51-62 billion assumes some rather interesting items:

  • The expected loss is offset by €98 billion of exiting provisions (which will have to be offset by something and if deposit outflows continue, instead of reverse, then this merely accelerates the under-capitalization); and
  • New profit generation of €64-68 billion seems remarkable for a banking system which is inextricably tied to its sovereign and entirely bust itself
  • We won't even speculate how a broke banking system can have a €33-39 billion "excess capital buffer"

It seems clear that adjusting these for any sense of reality means the real loss (or capital deficit) will be well north of the EUR 100 billion assigned to the country. We only wonder if Oliver Wyman was paid, as they should be, in stock of Spanish bank STD, vesting over the next 3 years.

And just so the message is not lost, we repeaet it: the insolvent Spanish banking system is expected to generate up to €65 billion in profits! Yet according to MSCI, the market cap of the entire Spanish banking system is.... €91.82 billion.

You can't make this shit up... (thanks to the Supreme Court we can now swear)

the full report: