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Banks & Builders Want New Property Bubble In Spain, Government Obliges

Banks & Builders Want New Property Bubble In Spain, Government Obliges

“This plan, far from solving or alleviating the problem, is likely to make it a whole lot worse.”

Spain’s second biggest bank, BBVA, just announced that it’s resurrecting the 100% mortgage, a high-risk loan instrument that notoriously helped fuel Spain’s madcap property boom. For the first time in almost a decade, property buyers will be able to receive credit equivalent to the total value of the property they wish to purchase. As before, no down payment will be needed. But this time, interest rates will be even lower.

Despite boasting the largest stock of empty housing in Europe — 1.36 million units at last count, almost a quarter of them belonging to banks and investment funds — Spain’s economy is being primed for another property boom. Real estate developers and builders want it and banks need it, not only to fatten their NIRP-eroded margins but also to dispose of some of the real estate assets still lingering on their books from the last crisis.

The government will do just about anything it can to help out. For the coming years, real estate developers want to build around 120,000-150,000 new housing units. It’s a mere fraction of the 700,000 new homes a year being built at the apogee of the last bubble — more than in France, Germany, Italy and the UK combined — but still a lot higher than current production levels.

In 2017, a paltry 43,300 new homes were built — little more than a third of the ambitious target real estate developers now have in their sights. There’s likely to be little change in this trend in the coming years, according to forecasts by the National Institute of Statistics (INE). Between 2017 and 2021 it predicts that around 188,000 new homes will be built – an average of just 47,000 a year.

…click on the above link to read the rest of the article…

The Banking Crisis in Spain is Back

The Banking Crisis in Spain is Back

The shares of Banco Popular got crushed.

After three years of relative calm and one month before yet another round of do-or-die general elections, the words “banking” and “crisis” are back on the front pages of Spain’s newspapers. Despite the untold billions of euros of public funds lavished on “cleaning up” their balance sheets and the roughly €240 billion of provisions booked against bad debt since December 2007, the banks are just as weak and disaster-prone as they were four years ago.

Francisco González, the President of Spain’s second biggest financial institution, BBVA, was the first to raise the alarm, warning a few days ago that the ECB’s negative interest rate policy “is killing” European banks.

Now, it seems González’s prophecy is already coming true.

Spain’s sixth largest financial institution, Banco Popular, on Wednesday evening announced that it was urgently seeking to raise €2.5 billion in capital in order to shore up its finances. The news took many of the firm’s investors by surprise given that just a month ago the bank’s CEO Francisco Gomez had breezily reported that the bank had a very comfortable core capital level above the regulatory minimum and “one of the best” leverage ratios in the sector.

The market’s response to the latest news was emphatic. The bank’s shares plunged 25% Thursday morning. There was not even the barest flicker of a recovery on Thursday afternoon. On Friday, the stock dropped another 8.2%, to close at €1.59 per share, its lowest in 26 years. Over the three days, the stock plummeted 32%.

For the bank’s shareholders, it’s the second time this has happened in the last four years. In 2012, the bank’s management — virtually man-for-man the same management team as today — pulled the exact same stunt in an effort to stabilize the bank’s finances. The slogan the bank chose to sell that capital increase was “Our Past and Our Present Guarantee Our Future.”

…click on the above link to read the rest of the article…

Olduvai IV: Courage
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Olduvai II: Exodus
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