Hedge Funds, Wall Street not Happy with the New Spain

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The scheme derailed.

By Don Quijones, Spain & Mexico, editor at WOLF STREET.

Plunging shares, shrinking profits, and a spate of new regulations and court cases that could end up setting it back billions of euros – that’s what the Spanish banking sector is facing. But now, banks are also grappling with the complete absence of a friendly central government to insulate them from the cruel vagaries of the global economic downturn.

And the strain is beginning to show.

“The political parties must reach an agreement as soon as possible and form a government that is stable,” pleaded Francisco González, president of Spain’s second biggest bank, BBVA. Such a government must not “think about utopias, which only serve to create frustration,” must be “realistic” and (most important of all) must “continue with the policies of the last three of four years.”

González cautioned that foreign investors “are phoning less often” than before. Those “investors” probably include firms like Blackstone and Goldman Sachs, which made a fortune in the immediate aftermath of Spain’s real estate collapse and EU-funded bailout, by picking up publicly subsidized housing on the cheap and either flipping them or renting them at much higher rates.

In those days, the city council was led by Ana Botella, the then Mayor and wife of Spain’s former President José María Aznar. One of the main brokers in the deals struck between the city council’s two housing agencies and international funds like Goldman and Blackstone was José María Aznar Botella – their son!

Despite his lack of investment banking experience, Aznar Botella served as an advisor and go-between at the Madrid-based real estate firm Gesnova Gestión Inmobiliaria Integral, which enjoyed close ties with firms like Blackstone subsidiary Fidere, Lone Star, Apollo, KKR, Goldman’s Madrid-based subsidiary Azora, and U.S. private equity firm Cerberus Capital Management LP, whom Aznar-Botella also serves as an advisor.

Here’s how the scheme worked: in the aftermath of Spain’s real estate bust, the Rajoy government set up a bad bank by the name of Sareb, a public-private venture responsible for managing distressed assets transferred from the four nationalized financial institutions BFA-Bankia, Catalunya Banc, NGC Banco-Banco Gallego, and Banco de Valencia.

As soon as the bad bank was operational, global investment firms began flocking to Madrid to pick up the juiciest pieces at the best prices, part-subsidized by Spanish taxpayers. To get their hands on the really good stuff, however, investors needed someone on the inside, which is presumably where the Aznar-Botello mother & son partnership came in.

But it’s one thing to sell tranches of unoccupied or foreclosed properties to foreign investors to help put a floor under Spain’s property market; it’s quite another when you start selling huge batches of social housing at a ridiculous discount to some of the biggest financial firms on the planet, in a country that has one of the smallest stocks of social housing in Europe. It didn’t take long before rents began soaring and the police began knocking doors down.

For the best positioned investors, the scheme worked a treat — until local elections last May, when the city councils of both Madrid and Barcelona, Spain’s two biggest real estate markets, fell under the control of leftist administrations led by two Podemos-affiliated mayors, Manuela Carmona and Ada Colau.

In Madrid, Carmona has just finished negotiating the release of 300 Madrid flats from Sareb’s stock, which will be used as subsidized accommodation for vulnerable families. She has also refused point-blank to sell any more of Madrid’s social housing stock to global investment firms. Meanwhile, a civil servant in charge of public housing in Madrid is under investigation over the sale of 3,000 social housing units to Goldman for €200 million, an average of around €60,000 a piece. A couple of years later, Goldman was reported to have sold the same apartments for over double that.

In Barcelona Colau’s council has announced a range of measures aimed at reducing evictions, as well as expanding the stock of properties available for social housing. Similar measures were proposed for the whole Catalan region and received the support of all the main political parties, including (amazingly) the People´s Party.

Big investors are not happy. In the first shot across the bow Moody’s just warned the Catalan government that its anti-eviction law could pose a “very serious threat,” not only to real estate investment in Catalonia, but also to Spain’s mortgage market. The main bone of contention, it seems, is a clause that states that if a bank sells a mortgage to a third party, such as, say, an investment firm on the other side of the planet, the debtor can be released from the credit arrangement. What’s more, to pay off the mortgage, the debtor need only pay the third party the same amount that the third party itself paid to buy the mortgage from the bank.

It would be the equivalent of a debt haircut, Moody’s says. And debt haircuts are not meant for mere mortals. If applied across the board, it would make global investment funds think twice before investing in Spain’s mortgage market. More to the point, if a coalition of left-wing parties were to form the central government (unlikely but not completely out of the question) and adopt a similar measure, it could spark a stampede of investors.

As for the likes of Goldman and Blackstone, they no doubt have their sights set on fresher, juicier targets. At a meeting held in New York last month, Aznar Botella recommended to managers of Cerberus that the good times in Spain were probably over — in other words, the political party his father used to lead no longer enjoys an absolute majority in parliament — and the fund would be well advised to seek opportunities elsewhere.

The country he singled out as the most promising candidate was Italy, which, as luck would have it, just set up its own bad bank with over 200 billion euros worth of distressed assets to feast on. By Don Quijones, Raging Bull-Shit.

And the missing capital buffers at these banks? Read… Who Gets to Pay for the Italian Banking Crisis?

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  25 comments for “Hedge Funds, Wall Street not Happy with the New Spain

  1. February 3, 2016 at 3:00 am

    I don’t know what $ amount you derive from this website, but it’s less than you deserve. Remember, I did warn you about being too critical of the powers that be. I worked in the basement of the federal government for almost 50 years. I can tell from firsthand experience that burrs under the Federal Reserve’s saddle get removed one way or the other. I do not have to quote history, you already know about executive order 11110 and other such mishaps. My partner had a small tattoo that read, “Be wear of the Inland Taipan”, and I still shiver on remembering the joy that flooded his face when he did his job.

    • Dan Romig
      February 3, 2016 at 6:47 am

      It took 171 days before the President who signed that Executive Order was killed.

      • Bob Miller
        February 3, 2016 at 7:04 am

        You reminded me of what a shooter once said after I asked why it took so long, “Perfection is the child of time.”

    • Petunia
      February 3, 2016 at 11:44 am

      Are you referring to Eric Holder, the last Attorney General, a bankers’ lawyer, who was intentionally appointed to make sure none of the bankers when to jail, and is now back at his old firm counting the cash. Or are you referring to someone else? The list is so long at this point, I am losing track.

      • Bob Miller
        February 3, 2016 at 3:00 pm

        No I wasn’t referring Holder. People as you know are not appointed for the reasons stated. The one thing I know for sure is, you can say and do pretty much as you please until the powers that be see you as a party pooper. When that happens, the phone in the basement rings, and shortly there after someone somewhere will be making funeral arrangements.

    • Debravity
      February 6, 2016 at 8:05 pm

      Keep up the great work, Don!

  2. Thaisleeze
    February 3, 2016 at 3:42 am

    It is hard to see when the rape and pillage by these modern day Vikings might end. Everywhere corruption is exposed Goldman Sachs always features. The latest in my part of the world is a scandal in Malaysia that is at least on a par with the President Marcos affair (google 1MDB). And of course, which bank was there to grease the wheels? Goldman, naturally.

    • d
      February 3, 2016 at 4:23 am

      People go to Goldmans as they have the best Lawyers, you will get paid, and they have US $.

      Very few Goldman deals unravel, as a %.

    • Achilles4756
      February 4, 2016 at 6:09 am

      It is hard to see when the rape and pillage by these modern day Vikings might end. Everywhere corruption is exposed Goldman Sachs always features. The latest in my part of the world is a scandal in Malaysia that is at least on a par with the President Marcos affair (google 1MDB). And of course, which bank was there to grease the wheels? Goldman, naturally.

      This is exactly why I think those who believe in KARMA are pure dupes, stooges, and suckers…..

  3. walter map
    February 3, 2016 at 5:34 am

    It all becomes clear once you realize that we are all just kibbles and bits for the global bankster cartel. Banksters have the morals of a famished barracuda. It is always a mistake to feed the banksters. It only makes them hungrier.

    The solution is obvious: reduce the banking industry to a non-profit public utility, prohibited from having any political power. Nationalize the banks.

    Problem solved.


    • d
      February 3, 2016 at 6:08 am

      Bankster’s bankster’s bankster’s
      Grow up.

      Crony capitalist cabal. Would be a more appropriate term.

      Before them there were the old china trading houses, Colliers, Jardiniere, Mathewson, British/Dutch east india Etc. Which have morphed and are still around then, further back the merchants of, Burges, Venice. And off course since before Christ the merchants of the city of London.

      There has always been a group of big international traders, to big to be the insidious entity small minds claim exists. As a group that big can never keep a conspiracy quiet.

      Banks are like toilets, a necessary part of a healthy economic system.

      Apart from rouges like DB, (too much smoke at DB must be some senior level intent) most banks try not to break the law, as it gets expensive.

      When like JPM you push the envelope. Sometimes you go a little to far.

      Jamie Diamond and Steve Cohen are both still in town, as neither of them, or their entity’s, set out to deliberately commit crimes.

      Stop blaming the banks for what happened, and is happening, and look at how they can do these things, and think its legal.

      Which in America takes you to congress, and the Corrupt US political system.

      Which takes you to, US Electoral campaign reform.

      Stop beating the result of the problem, and start dealing with the Cause of it.

      • walter map
        February 3, 2016 at 9:41 am

        “Banks are like toilets, a necessary part of a healthy economic system.”

        Toilets don’t bankrupt entire countries for fun and profit. That’s what banksters do. It’s what they’ve always done.

        “Which in America takes you to congress, and the Corrupt US political system.”

        Which is corrupted by corporatists, including banksters who themselves own corporatists.

        “It is well that the people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.”

        – Henry Ford

        Your turn.

      • tbelstler
        February 3, 2016 at 5:05 pm

        I think you are correct in your assertion that some of these things have always been around. However, scale matters and the scale of today’s looting of the poor and middle classes is unprecedented in the history of the world and is made possible by near instantaneous worldwide communication that facilitates the transfer of unlimited amounts of money and thus provides an interconnectedness that has not been possible before.

        As for whether what was done is against the law, I think that it is only the immense influence that the amount of money involved can buy that has kept a number of these folks from extended stays as guests of Uncle Sam.

        • d
          February 4, 2016 at 12:35 am

          No Edit on this Site.

          Given their size, both the United States and Japan would need to ratify the deal, which will set common standards on issues ranging from workers’ rights to intellectual property protection in 12 Pacific nations.


          Belongs after

          To reform Corruption in Spain, one Probably needs to start in the Vatican.

    • RDE
      February 3, 2016 at 11:20 am

      And relocate all banksters to a maximum security prison located at McMurdo Bay Antarctica. And turn off the heat as you leave.

      • walter map
        February 3, 2016 at 12:27 pm

        Justice should require the punishment to fit the crime: ban them from the finance industry, confiscate their fortunes, and make them get real jobs.

        No mercy.

      • d
        February 4, 2016 at 12:37 am

        Its McMurdo sound .

        Second you keep all you trash, in the norther hemisphere,

        We are not, and will not be your, garbage can.

  4. Chris
    February 3, 2016 at 8:08 am

    Austerity is a nice term for looting. Government owned and operated facilities and infrastructure were paid for with that nation’s taxes. Selling these assets for pennies on the dollar is tantamount to theft. Is it any wonder that the citizenry turn to leftist governments that vow to “protect” them. Sadly, they simply sweep away one gang of bandits for another.

  5. Paulo
    February 3, 2016 at 10:20 am

    And everyone touts “The Rule of Law”, as the most important aspect of a stable and just society.

    But everyone forgets to ask, “Whose law”?

    There needs to be ‘no go’ areas for banksters and their foot soldiers. They need to be afraid to come out of their holes.

    I have been watching this news cycle wondering when an assasination attempt will be made on the character a particular 2016 candidate. The first weapon of choice will be dirty laundry. After that, who knows? Clearly, these snakes play hardball and own the stadium, the players, the concession stands, the parking lots, the toll roads, the……. How does this apply to Spain? Easy. Same players and owners, worldwide!!!

    • nick kelly
      February 3, 2016 at 7:58 pm

      If you are talking about Trump a masterful and informed character assassination has already been done by a former right hand man Jack O’Donnell who wrote the book ;Trumped!

      One snippet: Trump had no interest in horses but hung around high rollers who did, Once on a plane, he did a handshake deal on a promising colt ( mistake one by the horse guy)
      A while later, Trump shows up at stable and wants colt ‘breezed’- run fast.
      Trainer asks if it could wait- colt has a cold.
      No way says Trump
      Horse runs gets sick
      Guy phones Trump about treatment: Gets news. Mr. Trump no longer wants to buy colt.
      Rich glitz son of a bitch says wealthy but genuine horse lover.
      Please spread word- I hope the book will go e-book in time for election.


  6. Petunia
    February 3, 2016 at 11:23 am

    Remember, the Roman Empire ended when the people opened the gates to the foreign looters and walked away. They couldn’t tell the difference between their own looters and the foreign looters. Our own looters have eroded the confidence in the entire country/system. America like Spain, is a country which has fought internal revolutions. I don’t understand why they think it won’t keep happening.

  7. B.S.
    February 3, 2016 at 1:51 pm

    I I googled Sareb and found this:


    In the sub heading “Divestment Process”, it states:

    “However, Sareb also has a unique and exclusive instrument, which has been specifically developed in order to serve as its very own divestment tool – Bank Asset Funds (FAB – Fondos de Activos Bancarios). These are flexible instruments, inspired by securitisation funds and collective investment institutions, and are specifically tailored to professional investors. Their set up and operation will be supervised by the Spanish Stock Exchange Commission (CNMV).”

    So the CNMV must have had their palms greased also in this grand scheme to fleece the Spanish people.

    The corruption runs extremely deep and widespread in Spain – much deeper even than Mr. Quijones has so far informed us.

  8. February 3, 2016 at 4:29 pm

    If applied across the board, it would make global investment funds think twice before investing in Spain’s mortgage market.

    And the down side of this is?????

  9. nick kelly
    February 3, 2016 at 7:35 pm

    Without taking any position whatsoever on Goldies antics- a double on distressed real estate after a ‘couple of years’ is not unique or even unusual. Probably a million or more such deals went down in the US collapse, many done by mom and pop or Dick and Jane bargain hunters, especially if they weren’t scared of some work. Canadians were among the buyers.
    I want to add that I enjoy this contributor a lot but some of this stuff about Spain ( which they tell me is too big to bail out) is kind of scary.
    BTW: the piece about the kid who predicted the bankruptcy of Spain’s largest construction outfit after the majors had blessed it was the kind of stuff you can’t make up.
    Come to think of it, a whole bunch of stuff seems like that.

  10. Oneyedjack
    February 16, 2016 at 9:10 am

    Corruption is now out in the open.Who will arrest them or prosecute?

Comments are closed.