Spain is Now Facing a Banking Crisis and a Sovereign Crisis At the Same Time

Spain is Now Facing a Banking Crisis and a Sovereign Crisis At the Same Time


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Submitted by Phoenix Capital Research on 06/19/2012 08:48 -0400

Last year I wrote a piece in which I noted that the EU would implode before the end of 2012. The reason for this was clear as day: EU banks needed to roll over hundreds of billions of Euros’ worth of debt (possibly trillions) at a time when interest rates would be rising as sovereign bonds fell in value:

At that time I wrote:

This is not a question of “if,” it is a question of “when.” And it will very likely happen within the next 10-12 months if not sooner depending on how soon Greece defaults.

The reason that this is guaranteed to happen before the end of 2012 is that a HUGE percentage of European bank debt needs to be rolled over by the end of 2012.

Between now (autumn 2011) and then (end of 2012)…

• French banks need to roll over 30% of their TOTAL debt.

• Spanish banks and Italian banks need to rollover more than 33% of their TOTAL debt.
• German banks need to roll over nearly 40% of their TOTAL debt.
• Irish banks need to roll over almost HALF (50%) of their TOTAL debt.

Let’s fast forward to today to focus on Spain’s current predicament:

Consider the following…

1. Spain’s banking system is roughly €3 trillion in size (3X Spain’s GDP).
2. Spanish banks’ gross borrowing from the ECB was €316 billion in April.
3. Spanish banks need to roll over 20% of their bonds (roughly) €600 billion this year.

Anyone can see by this a simple “back of the envelope analysis “that Spain will need a lot more than €100 billion to recapitalize its banks.

How on earth Spanish banks can roll over €600 billion in bonds at a time when the global bond market has just learned that all private bondholders will be subordinate to the ESM is beyond me (read: it won’t happen).

And thanks to a €100 billion bailout which has put Spain’s REAL Debt to GDP at 146%, Spain is now facing both a banking crisis AND a sovereign crisis simultaneously. There is no entity on this planet that can shore up both the Spanish banking system as well as the Spanish Sovereign bond market.

To be blunt, I fully believe that this €100 billion bailout for Spain’s banks has put Spain in a “checkmate” position. With total unemployment at 25%, a housing bubble that continues to collapse, and an official Debt to GDP ratio of 146%, there is no way Spain will be able to grow its way out of this mess.

Put another way, Spain is a financial tsunami and the €100 billion is an emergency levy made of questionable materials built unqualified engineers: the move has bought some time, but the relief will be brief.

This is why Spain’s Credit Default Swaps (essentially bets that Spain will default) have nearly doubled in 2012 alone. And the bailout has done nothing to assuage investors’ beliefs that Spain is in BIG TROUBLE. Indeed, we’re heading back towards all time highs already within one week of the bailout.

Put another way, Spain is toast. I’ve already assessed that none of the key players (the IMF, the ECB, the EFSF, or the ESM) has the firepower to prop up Spain whose real capital needs are more in the ballpark of €300 billion -€500 billion.

Thus, it’s GAME OVER for the EU. Sure it may take a while for this to manifest as politicians offer various hair-brained schemes to attempt to put off the inevitable debt collapse, but that debt collapse is coming and it will hit before the end of 2012.

On that note, if you’re not preparing for the collapse of the EU, you need to do so now. I recently published a report showing investors how to prepare for this. It’s called How to Play the Collapse of the European Banking System and it explains exactly how the coming Crisis will unfold as well as which investments (both direct and backdoor) will profit from it.

This report is 100% FREE. You can pick up a copy today at: Gains Pains & Capital

Good Investing!

Graham Summers

PS. We also feature numerous other reports ALL devoted to helping you protect yourself, your portfolio, and your loved ones from the Second Round of the Great Crisis. Whether it’s a US Debt Default, runaway inflation, or even food shortages and bank holidays, our reports cover how to get through these situations safely and profitably.

And ALL of this is available for FREE under the OUR FREE REPORTS tab at: Gains Pains & Capital

Spain is Now Facing a Banking Crisis and a Sovereign Crisis At the Same Time | ZeroHedge

You Have Not Known Pain Until You've Tried To Limit The Borrowing Costs of Spain!!!


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Submitted by Reggie Middleton on 06/19/2012 10:19 -0400

• Bank Run
• Bond
• Borrowing Costs
• default
• European Central Bank
• Greece
• Italy
• Rating Agencies
• Rating Agency
• Reggie Middleton
• Sovereigns

The MSM reports Spanish Short-Term Debt Costs Reach Alarm Levels:
Spain paid a euro era record price to sell short-term debt on Tuesday, pushing it closer to becoming the biggest euro zone country to be shut out of credit markets. The soaring borrowing costs highlight the shortcomings of a June 9 euro zone deal to lend Spain up to 100 billion euros ($126 billion) for its banks.
Last week CNBC Asked, "So Why Are Spanish Bond Yields Falling?". I Asked The Better Question, "Why Are Spanish Banks Considered Solvent?" That's because by now everybody knows that the bank's problems are the sovereign's problems and vice versa. Reference Dead Bank Deja Vu? How The Sovereigns Killed Their Banks & Why Nobody Realizes They're Dead..
They also illustrate how Europe's problems run much deeper than Greece, brought back from the brink of default in Sunday's parliamentary election.
Spain, the euro zone's fourth largest economy, had to pay 5.07 percent to sell 12-month Treasury bills and 5.11 percent to sell 18-month paper - an increase of about 200 basis points on the last auction for the same maturities a month ago.
And this was AFTER the bailout! With friends like those, who needs enemies, eh?
While Spain's 10-year bond yields eased slightly to around seven percent after the sale, the auction underscored the government's increasingly shrill pleas for help from the European Central Bank, two days before Madrid tries to sell three-to-five year bonds.
If you remember, I warned that Spain was effectively ignoring some very large, bank related and budgetary problems as far back as 2009/10.... Reference The Spain Pain Will Not Wane: Continuing the Contagion Saga:
In the general our analysis Spain public finances projections_033010, the first four (of 12) pages basically outline the gist of the Spanish problem today, to wit here are the first two:

http://boombustblog.com/images/stori...10_Page_02.jpg


Over the last two months, as the MSM and sell sides have underplayed the importance of Spain's problems, I have repeatedly underscored the threat that Spain actually presents to the EU and the world economy...

• The Economic Bloodstain From Spain's Pain Will Cause European Tears To Rain Thursday, 26 April 2012 21:06
• S&P Downgrades Spain (After I Did) Two Notches, Near Junk... About Time

About those rating agencies... Of course, we all know how reliable and timely the rating agencies are, right? See Rating Agencies vs Reggie Middleton, Part 3 and the Interesting Documentary on the Power of Rating Agencies, with Reggie Middleton Excerpts
http://boombustblog.com/images/stori...es-500x281.jpg
The only rating agency that even remotely mirrors my realistic perpsective on financial risk is Egan Jones, and you can just imagine what they sound like...

• Full-Scale Bailouts for Italy, Spain in 6 Months: Egan-Jones

Hey, I've heard some smart guys say something along those lines... Bank Run Italiano Style!!!

• Spain Credit Rating Slashed by Moody's, Egan-Jones

And for those that don't believe the Spanish malaise can touch you, European Insurer Needs Insurance As $6B Of Its Bonds Are Instantly Subordinated Due To "Spain's Pain".

You Have Not Known Pain Until You've Tried To Limit The Borrowing Costs of Spain!!! | ZeroHedge