Thursday 25 February 2010

Rotten to the core

A lot has been, is being and will be written about the state of Spanish banks and the Spanish economy.  One of the reasons I do not write more regularly about economics, finance and investments is that there are plenty of very smart and intelligent people already doing so, not least Catalonia-based Edward Hugh. The other reason is because I work in the damned sector (asset management) that bears a great deal of responsibility for the boom, the bust and subsequent economic mess we are all involved with.


A few months ago, I tried to reply to a post in The Badrash about the banking crisis but I think it was far too long...  I was cleaning up my hard drive when I came across the text I had written at the time. So this is a bit of a recycled text from Q4 2009 but still valid nevertheless:



Any published investment research uses ramping to some extent. Everybody talks their own book and it is just a matter of degree how unsubtle some people are. Let’s ignore the xenophobic PIGS slur nonsense and focus on the numbers.

Ramping or not, the banks are not recognising loan losses. That much is clear. 
Whether they are insolvent or not is not the point anymore –the government is always there so it does not really matter unless you are a shareholder or a junior debt-holder. Retail depositors will be fully protected, which is the main thing these days, and rightly so.

This story has been brewing for a few months now, so let’s recap: (taken from FT AlphaVille)

February 2009: FT publishes warning piece on the grandstanding of Spanish banks and the “miracle” of dynamic capital provisions.

April 2009: BdE governor issues infamous list of cajas at risk.


May 2009 (a week later): Moody’s Ratings division issues release announcing it would review ratings for 36 Spanish institutions.

June 2009: Moody’s Ratings division issues ratings downgrade update/

Questions start to arise about the ability of cédulas to pay out.

During the summer, rumours start to spread in the web about the financial strength of Spanish banks and all kind of wild predictions are made. It all kicks off at the end of August.

18 August 2008:
Expansion publishes famous article about 1 in 5 mortgages at risk of being in arrears or default:

This is picked up by Edward Hugh in the Fistful of Euros blog:

21 August 2009
Variant Research (affiliated with a UK hedge fund) issues gloomy report.

25 August 2009: Felix Salmon at Reuters publishes article on Spanish banks.

2 September 2009
Iberian Equities (Madrid-based) takes patriotic exemption at Variant’s research and issues counter-report.

3 September 2009
Variant Research replies to Iberian Equities counter-report.

11-21 September 2009
Edward Hugh publishes various articles about Spain:

9 September 2009
UBS publishes research on Spanish banks.

14 September 2009
Credit Suisse issues less gloomy report on Spanish banks.

15 September 2009
S&P issues report on expected credit losses.

5 October 2009
They are even talking about it in Australia.
13 October 2009
Moody’s issues updated report on Spanish banks.

15 October 2009
Nomura issues research report on Spanish banks. Nice graphs.

So, Spanish banks are fucked, and it is only the political will of the ECB that there have not been in Spain more bank failures like Northern Rock, B&B, etc.
Dynamic capital provisions, prudent lending standards, all well and good and thanks to this it is not worse. An airbag would not save you from a 200 Km/h crash, and the same applies to dynamic loan provisions in Spain.

Let’s stop and think for a second:

Is it possible that Spanish banks are somehow immune and unaffected to the biggest property bubble in modern history and still with an inventory of c3m properties unsold?


So that is what I compiled and wrote around mid-October 2009. 
Since then, a few things have happened. 

 9 Dec 2009: S&P places Spain sovereign debt outlook on negative watch. Edward Hugh expands and explains. But check this older post for a back-to-basics explanation and background on the whole fiasco.


3 Feb 2010: BBVA presented results in Q1 2010 and people started asking questions [again] about NPL (non-performing loans), or mortgages in arrears/default to you and me. 
BBVA.



17 Feb 2010: JP Morgan issues a report on regulatory reform and capital requirements of the banking sector, looking at dynamic provisions, one of the idiosyncratic features of the Bank of the Spain regulation of the banking sector. This report vindicates something I wrote many months ago in someone else's blog and at work in 2008:  "..dynamic provisioning or not, Spanish banks are toast. Would you be saved by an airbag if you were driving at 200Km/h?". 

18 Feb 2010: Credit Suisse publishes a research note on Spanish banks. Top read. 

 And of course we have the whole sovereign debt crisis in Greece and moving westwards across the Mediterranean (and Ireland) into what the europhobe and ignorant anglo-saxon media have termed the PIGS. 

So let's recap:

1) The banks get themselves into a mess of their own and end up insolvent or bankrupt.

2) Sovereign states (ie: taxpayers) come to the rescue of the banking and wider financial sector and inject billions of euro/pounds/dollars into the financial system. 

3) Now the financial sector turns their attention to the fiscal position of sovereign states and demand that spending be curbed or taxes raised to reduce debt. 

4) Politicians across the western world get ready to cut public sector investment (that's schools, hospitals, police, transport, and so on) and/or  lower corporate taxes to attract foreign investment and encourage growth


And then when people complain about this rotten state of affairs, they are labelled populist and that banker-bashing is childish. 


If I was a teacher/policeman/nurse/bus driver/social services officer about to lose my job because of the demands of the very people that got bailed out by the taxpaying public I would feel nothing but hatred for any manager/front office dumb-ass working in the financial sector who is still defending the indefensible against any logic.


There is no other "industry" in the world of business that can get away with deception, duplicity, theft, tax avoidance and an absolute disregard for the wider common good in such a massive scale as the self-serving, socially useless banking and investment sector. 


And what can be done about this? 
Nothing, absolutely nothing because our politicians are all in the pockets of the financial sector. It is all very depressing.

Sunday 21 February 2010

The economics of Catalan independence

Fascist impunity (II)

A family misses a flight from Girona airport after the Spanish Guardia Civil detains a woman for daring to speak Catalan. [link]


I wrote about this incident a few months ago.
After over 30 years of so-called democracy the Spanish Policia Nacional and Guardia Civil still behave with total impunity criminalising Catalan-speakers and making their lives a misery. The Spanish State remains silent and continues its policy of complicity with these Fascist scumbags masquerading as police officers. They are never disciplined, let alone sacked as they would be in any advanced democracy in Europe.

If this kind of incidents were happening against any other community in the world, Amnesty International would get involved. Foreign correspondents would write about it.

But discrimination and police repression against Catalans is accepted. It has happened for centuries so what’s new?

Spain in 2010:  court trial date set for daring to speak Catalan language with a Spanish police officer. Another example of the wonders of Spanish democracy. And then some wonder what the fuss is about….

Road to nowhere

More and more people are coming to the same conclusion: being part of Spain is the road to nowhere. A political, economic and social cul-de-sac for Catalonia at every level.

The latest political representative is Raul Romeva (blog), a member of the European Parliament for ICV, the eco-socialist coalition of former communist parties. This is a journey I make myself over a decade ago: the federalist route is a waste of time and effort. Independence in Europe is the best possible solution for Catalonia.

In a conference with other MEPs in Barcelona, Mr Romeva has admitted that it is pointless to pursue the objective of a federal Spain.

To quote from the man himself:

To start with, something of a confession which is not entirely new I am afraid: I am in the camp of those who for a very long time have defended a federalist vision of the [Spanish] State, of those who believed that what we needed was to persuade our friends around the rest of the [Spanish] State to make institutionally visible the plural, multicultural and multinational reality of the Spain. However, I acknowledge that in the rest of the State nobody believes in the necessity to move forward towards a federal solution. What is the point, therefore, of insisting in an option that nobody else believes neither necessary nor possible?

This coming from a senior representative of a party that has always advocated the federalist route as a way to resolve the current Catalonia/Spain “conflict”.

How many more will switch sides in the coming years?

Links :

Racó Català (cat)

Publico (cas)

Monday 15 February 2010

Euronews - Catalonia: independence or autonomy?

http://www.euronews.net/2010/02/12/catalonia-independence-or-autonomy/

Nice to see the Spanish nationalist lobby embarrasing themselves with their lack of democratic convictions, historic revisionism, cultural prejudice and a disturbing fundamentalist attachment to the undestructible unity of Spain and the 1978 Constitución.

Let's hope they do not send the tanks again.

Monday 8 February 2010

The more the merrier

I am glad to report that I have recently discovered a couple of English-language blogs about Catalan/Spanish politics:

Catalonia Direct
Catalonia Info

and an updated entry from George@BCN. Keep it up, superb writing.

These new additions to the English language Catosphere, each with its own perspective, will serve to counter the pseudo-historic revisionism, the pack of lies and bullshit, and the Catalanophobe resentment of Spanish nationalism (past and present) apologist Kalebeul.

Update 19/02/2010:
I have added a few blogs to my blogroll and to the list of blogs I follow. Great stuff out there but there are some people that could do a bit better....

Friday 5 February 2010

When in a hole, stop digging

In the end, only four MPs will be prosecuted by the Police.

Full details of the story can be found at the BBC News website.

The extent of the immorality of these scumbags, the four that are being charged and the many that are getting away scot-free is beyond comprehension. But surely the top prize for conceit, the number one award for guilt-free theft has to go the the RH Jim Devine MP.

I almost choked on my fish and chips watching this interview in Channel 4.
The Labour member of parliament for Livingston admits to submitting false receipts. But wait, things can only get better: he did so on the advice of a Labour whip.

Under questioning by the C4 presenter, Mr Devine refuses to disclose the ientity of the Labour whip who alledgedly advised him to submit false receipts. I trust Mr Devine will not be as shy under interrogation by the Metropolitan Police.

But here is the interesting thing about Mr Devine's explanation: he claims he moved money around but did not benefit financially himself. So who did? Were there any bank transfers between Mr Devine's "communications" and "staffing" accounts and a bank account of a third party, let's say a Labour party bank account?

This is only the start.