Reply #8

In the discussion thread: STOCK MARKET WATCH -- Wednesday, 25 April 2012 [View all]

Tue Apr 24, 2012, 09:14 PM

Demeter (65,486 posts)

8. Judging by Ireland, Spanish banks to take a lot more credit writedowns

QUERY: HOW COME US BANKS DON'T HAVE TO WRITE DOWN STUFF? THEY JUST TURN IT INTO THE FED FOR READY CASH ON FACE VALUE, NOT MARKET VALUE...

http://www.creditwritedowns.com/2012/04/spain-banks-writedowns-capital.html

Ireland dealt fairly quickly with its property market bubble by effectively and forcefully nationalizing and recapitalizing its banking sector. They clearly still have a serious problem on their hands, but the nation has been aggressive in addressing the issue of distressed real estate loans. In contrast, Spain’s banking system is nowhere close to fully recognizing the full extent of the problem. Not facing the problem however is not going to make it go away.

Reuters: "Banks are not recognising all of their risk. Many of their debtors are property companies with negative equity who can’t even pay the interest on their debt," Fernando R. Rodriguez de Acuna, chairman of the consultancy, told Reuters by telephone.

There are at least 21,000 "zombie companies" in Spain that owe banks 126 billion euros, Rodriguez said, basing his estimates on recent data from Spanish mercantile records.

He said the banks were covered for only 67.5 percent of that risk, leaving 40 billion euros of exposure if all the companies filed for bankruptcy.

The fate of the banks is being watched by international investors who fear Spain may be forced to apply for aid as the euro zone debt crisis enters its third year.

One of the issues the banks are dealing with is poor recovery levels on distressed property loans. Recoveries are considerably lower than anticipated.

FT: Repossessed properties in Spain are selling for about half their original value and are likely to continue to fall in value, according to a new report, underlining the parlous state of the real estate market in Europe’s fourth-largest economy. Valuations on properties that were bundled up in securitisation deals and later repossessed are also significantly lower than data from the official housing price index suggest, according to a report from rating agency Fitch due to be published on Thursday.

…

Carlos Masip, Madrid-based director at Fitch, said: “If we view the market today we believe that there will continue to be a downward pressure on property prices. Home prices are still unaffordable for many when compared to income levels, there is a short supply of credit and a huge overhang of unsold properties.”

As discussed earlier, the amount of "recognized" bad debt has spiked. But this is thought to be only a part of the total delinquencies the banking system will be facing soon...MORE

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70 replies	Author	Time	Post
STOCK MARKET WATCH -- Wednesday, 25 April 2012 [View all]	Tansy_Gold	Apr 2012	OP
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