It just doesn’t let up.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Obscured somewhat by the spectacular antics of Deutsche Bank, there appears to be another bailout of two of Spain’s franken-banks: mostly state-owned Bankia and wholly state-owned Banco Mare Nostrum (BMN). The news was released so quietly that even in Spain barely a living soul is aware it’s happening.
The Next Madcap Merger
The two banks, each the product of two madcap mergers of Spain’s most insolvent savings banks, will be merged into one giant entity that is expected to become Spain’s fourth biggest bank by assets. The merger has been on the cards for a number of months since Spain’s Economy Minister (and former Lehman Brothers advisor) Luis de Guindos began dropping hints that one of the first jobs of Spain’s next elected government would be to find a solution to BMN’s ownership issues. Now it’s being brought forward, probably because the chances of Spain having an elected government any time this year are fading by the hour.
For the moment, BMN is completely state-owned, after its four constituent state-owned parts — Caja Murcia, Caixa Penedès, Caja Granada y Sa Nostra — were rescued by Spain’s taxpayers and lumped together for the modest price of €1.6 billion in 2010. But by the end of this year all that was supposed to have changed. Plans had been drawn up for an IPO of the bank, but in the current environment, with banks falling like flies all over Europe, investors refuse to go near it.
Hence the merger, which despite only being in the “study stage,” has already received the blessing of Spain’s caretaker government, Spain’s central bank, and Standard & Poor’s, which has promised not to downgrade Bankia’s credit rating after it has absorbed BNM’s assets and liabilities. The merger will also no doubt enjoy the undivided support of the ECB: Mario Draghi, announced just a few days ago the urgent need for greater concentration and consolidation of Europe’s banking sector.
Also firmly behind the merger is a motley crew of European and U.S. investment banks. They include Morgan Stanley, which predicts that the deal could add as much as €300 million to Bankia’s profits by 2018 or 2019.
Such lofty promises have all been heard before — and by and large from the exact same institutional mouthpieces. Before Bankia’s public launch in 2011, Bankia’s management, led by former IMF Chairman Rodrigo Rato, reported in its IPO prospectus a healthy quarterly profit of €300 million. Deloitte, Bankia’s auditor and consultant responsible for formulating its accounts (no conflict of interest whatsoever), was happy to sign off on the accounts. So, too, was the Bank of Spain. As for the government, it was just happy something was being done to save its favorite bank, which many of its own former ministers — Rato included — had run into the ground.
It was all a blatant lie: in reality Bankia was bleeding losses (more than €3 billion) from every orifice. Within months of its IPO, the shares had lost virtually all their value. Cue the biggest taxpayer bailout of a banking entity in Spanish history with a total cost to date of €22.4 billion, of which €1.6 billion has been recovered, by a government that had repeatedly reassured the public that it would never spend “un centavo” on rescuing the country’s troubled banks.
A recent trial in Spain has established that the image projected by Bankia prior to its IPO “did not correspond with the bank’s true financial situation” and that without this carefully constructed “facade of solvency” conveyed in the IPO prospectus, the IPO would never have gone ahead. As of June 30 this year, the bank had returned €1.6 billion to 223,000 duped retail investors. Almost all of it was public money. And now a growing list of institutional investors, including Spanish corporations like Iberdrola, OHL and Melia, want their money back, too. almost all of which will be drained from the public coffers.
“Hiding Problems” (Again)
Now, Spain could be about to witness another major financial operation involving Bankia. And not everyone’s as excited about the prospect as Morgan Stanley. According to 15MpaRato, a Barcelona-based activist group that has single-handedly landed dozens of former members of Bankia’s board, including Rato, on trial, the overarching goal of the operation has more to do with “hiding the problems on BMN’s books” than creating value for either bank’s shareholders.
“Most of the value attributed to BMN does not come from the financial assets” on its books but from its state-guaranteed tax assets [we covered this mess in 2014], the activist group told the Spanish daily El Boletin. As such, the reason why the bank’s IPO didn’t happen was “quite simply because its accounts are not reliable.”
If the bank’s “assets” are deteriorating fast, it would help to explain why Spain’s caretaker government is now in a mad rush to merge the two publicly bailed-out banks. In other words, it wants to “make BMN’s impossible numbers disappear.”
If true — and given Bankia’s six-year history, one can be forgiven for expecting the worst — the chances are that there’s yet more pain ahead for Spain’s long-suffering taxpayers. By Don Quijones, Raging Bull-Shit.
Everyone is denying everything. Read… The Loophole for Deutsche Bank’s Bailout: Game almost Over?
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I think your article indicates how dangerous the idea of ‘shorting’ a dying bank would be for even a gutsy and knowledgeable investor.
This past week a poster wrote he was considering doing just that.
It’s all a setup, from what I can see. The real CB meetings must look like mafia whisper strolls; covered mouths, backs to empty buildings, sudden changes of venues. I suppose meeting minutes are written the next day after careful vetting and deletes.
“The real CB meetings must look like mafia whisper strolls; covered mouths, backs to empty buildings, sudden changes of venues. I suppose meeting minutes are written the next day after careful vetting and deletes.”
Exactly right and well said, especially the above. You reminded me of Joe Pesci’s conversations with cohorts in the movie “Casino”.
Secrecy is the lifeblood of tyranny and government-sanctioned Ponzi schemes. This is why the Fed will never allow an independent, transparent audit (the public to see what’s behind that thick curtain).
What’s nice about the Spanish bank merger is that it exposes the real purpose of the Spanish government and European Parliament and the ECB — not only to keep even NON-TBTF banks alive, but to magically transform them into GENUINE TBTF banks!
These powers that be must all be forced to answer a one-word question. Why?
They would not answer with just a ‘why’ …. they would obfuscate with paragraphs of gibberish ….. as they currently do ..
While I was eating lunch, the answer to the question “why?” suddenly struck me.
Two men were sitting in a two-hole outhouse, doing their morning constitutional.
When one of the men was finished doing his business, as he rose and started pulling up his pants, a quarter fell out of his pants pocket and dropped down the hole.
Without so much as an afterthought, the man pulled out his wallet and, after pulling a $50-bill, threw it down the hole.
The other man was incredulous. “Why did you do that!?”, he said.
“You didn’t think I was going down into that sh.t-hole for 25 cents, did you?”
And this is why those two insolvent banks were merged. In for a penny, in for a pound.
And the real purpose of derivatives!
“Spain’s Economy Minister (and former Lehman Brothers advisor) Luis de Guindos”
No doubt a loyalist in favor of perpetuating the current structure of dumping gambling losses onto the public balance sheet while transferring invaluable assets to the private balance sheet.
How I interpret this is:
Not only will the CBs prevent a Black Swan event (DB failing), they will bail it (and others) out WITHOUT “an act of Congress” as was in 2008.
Invisible, MASSIVE transfer of wealth from the public, present and yet unborn, to banks which behaved badly without suffering consequence.
“Black Swan event (DB failing)”
Deutsche bank is not the only German bank in trouble, just the biggest.
Considering the state of global trade and shipping (Hanjin bankruptcy), these three German banks are loaded with billions of dollars in non-performing shipping loans and have been struggling to no avail.
1/ HSH Nordbank AG
2/ Norddeutsche Landesbank Girozentrale
3/ Bremer Landesbank
HSH Nordbank and Bremer made their position even worse by betting on a taxpayer-funded bailout of Austrian zombie-bank Hypo-Alpe-Adria, which was nationalized in 2009 to avoid declaring it dead and buried (as it was).
I have no details on Bremer, but HSH Nordbank has already been bailed out by offloading billions of euro in “non productive assets” upon the owners, meaning the City of Hamburg and the Lander of Schleswig-Holstein. The deal was approved by the EU earlier this year: technically it’s not a bailout as the owners agreed to eat their losses. Too bad those owners get their money from the usual place.
Speaking of secrets, banks and audits, who remembers that God’s own looney tune Ron Paul achieved an audit of the Fed, shortly after the 2007 collapse? I ask because Google can’t remember it–just try to discover it in the eternal ether where we learn everything. My favorite revelation was that, on the very day Congress was beaten into rubber-stamping the $700 billion bank bailout that they’d overwhelmingly rejected a week earlier, that same day the Fed began disbursing $8 *trillion* to banks around the world. Audit the bankd books? We don’t need no stinkin books! Oh yes, and chief Citilizard Jamie Dimon, who claimed he didn’t want any of the money Congress forced on him, turned out to have received 10 times as much as he said he didn’t need. Too bad you can’t google it . . .
Yes, these Fed audits (2) have a tendency to disappear from public few. One of my early articles in 2011 was about the second audit of the Fed (Sanders played a big role in getting that done). I uploaded the documents to my server, and they’re still there. Corruption doesn’t even describe it – but it was all within the rules of impunity that Congress gave to the Fed.
Great article about the audit, Wolf. Thanks for the link.
And what does CONgress do but grandstand and bloviate, like they did with their finger-wagging at the CEO of Wells Fargo just this last week ,,,,, like they ALWAYS DO …… frickin HeyZeus on a stick !!
Nary a vote on those trillions…
And people believe the President and Congress and the Senate run the show.
Standard & Poor’s, which has promised not to downgrade Bankia’s credit rating after it has absorbed BNM’s assets and liabilities
I read the linked article because I couldn’t believe they actually said this to the press. You write very detailed in depth articles and I have often wondered about your sources. Do they admit the fraud because they don’t think anybody actually reads this stuff? WOW!
This is a “confidence game”. The one and only basis on which to make a decision to invest in these banks is your “confidence” that governments and Mario will do “whatever it takes” to keep them alive.
To whom will government and Mario do whatever it takes?
Never swim up to a desperately flailing drowning man and offer him some help, because you’ll soon be underneath him, providing him some vital buoyancy.
The TBTF banks are drowning swimmers. Everybody and anybody else will be sacrificed for their buoyancy — their survival. In this case the phrase should be “WHOEVER it takes”.
Average People will try to keep some personal distance from them by removing their cash and either stuffing it under their mattresses or buying something real (land, food, gold, silver, lead, toilet tisse, etc.), so those drowning will order their political slaves to ban cash and perhaps even precious metals. People must somehow be forced to invest in the “correct” things and the TBTF banks must decide what those are.
Their end-game is bone simple. If the Titanic TBTF banks go down, everybody goes down with them, (or even before them — “Last Bank Standing”?).
“Never swim up to a desperately flailing drowning man” – and from this we see some shards of beauty in acts of small defiance – regular people, so long stolen from, told what to do & how to do it by their governments & press, instinctively recoil from the ‘low rates consume more’ pushed down our throats via redundant ZIRP & NIRP.
The first law of holes is that when you find yourself in one, stop digging. The oligarchs in Europe’s banking system would do well to consider that. As it is, they keep doubling down and concentrating the losses. The only real question is how long they can keep it up before they produce something truly “weapons grade.”
To all intents and purposes, three of the largest banking systems in Europe are insolvent. I think I hear the Fat Lady clearing her throat.
Nope, the first law of holes is that when you find yourself in one, you shout out to passerbys for help. Once you have been helped, you push the Samaritan into the hole to plug it.
Why are muppets always expecting that:
1. People with money are like everybody else?
2. That they would not act the same when they come into money?
People + big money/power = total destruction. Been the same for 5000 plus years.
It’s going to take lot of austerity to pay that bill. Maybe all of it.
Don’t think of it as the latest gigantic upwards wealth transfer designed to keep your overlords (and overladies) wealthy and powerful and the general population precarious and disempowered. Think of it as a recurring seasonal event in the global sheep-shearing operation.
It’s what livestock are for.
I have a pretty good idea of where austerity leads, DB has 10’s of trillions of austerity on their balance sheet.
How is it these guys with excellent global visibility and teams of researchers can possibly crash land, are they following the same well-informed peanut gallery corporate media spindoctors we’re subjected to?
The hole was placed there on purpose, with a gridwork of sharpened sticks placed at the bottom. There are a series of these holes strategically located in such a way as to trap food enough to feed the elite class.
Well …the ‘elite class’ better watch out …They may find themselves facing the business end of those sticks one day !
I believe someone in Germany speaking about DB’s possibility of raising capital (selling shares) has described the whole EU banking sector ‘as not really investable ‘
Which is a bit charitable. He might have said: not remotely investable.
On the bright side for DB, the US DOJ has apparently reduced its fine of 14 billion- a wholly predictable event. (I don’t know the new number)
The DOJ’s demand was for openers anyway and I don’t think under the circumstances it’s possible to not believe that pressure was put on the DOJ’s lead prosecutor to at least cut to the chase and get this over with: i.e, if we think we’re going to end up at 6B anyway, let’s do it.
Of course if DOJ offers 6 maybe DB comes back with 4.
But is it worth another Lehman to pinch nickels?
Or the blame for another Lehman.
It also seems unlikely that back-channels were not used between the US and Germany- the DOJ’s flexibility might have been a pre-condition to German help for DB, because how would it look to funnel money to DB so it can pay DOJ.
However- I’m going to throw out a challenge to DQ and WR- not for a debate by the way- we’ve done a few.
Let’s face it as much fun as it is watching these crazy antics from the Italian, Spanish, Portuguese, etc. banks- it is like shooting fish in a barrel.
Diagnosis is one task- prescription another.
What is to be done?
Is it possible to avoid a second Great Depression?
(The war we now call WWI was called the Great War until just over 20 years later)
Some Canadian authority just announced that if rates went up a quarter of a percent- one million people would feel a significant impact. But what if rates return to the average of the last 50 years?
I don’t know what the answer is but there seems to be two schools of thought: one, that there is no alternative to reflation by any means, the other that there is no alternative to deflation.
If it is the second one, there may be no alternative but a more socialist
economy/ society than (at least) the US has had so far. The pain will have to be shared.
The fabric of society was frayed in the Depression, but it endured.
A second more severe downturn might tear it apart.
Nothing can be fixed until the principals agree it is really broken and needs repair. The way this is fixed is to write off all the bad debt. It is that simple. It will never be paid because it can’t be. Now they just keep reselling it or holding it at bad marks. The collateral is worthless, let’s move on.
Who takes the HIT?
Someone here recently, stated the all debt is paid in full. This would be a great opportunity to explain.
“Nothing can be fixed until the principals agree it is really broken and needs repair.”
The principals agree that things are just as they should be.
Why, when the situation is so clear and alarming, does it remain so stubbornly intractable to change? It is because those who have power in the world want it to be this way.
“The pain will have to be shared.”
Your overlords (and overladies) have no intention of sharing the misery they’re inflicting on the general population. Their intention is to continue profiting from it until there’s nothing left to extract.
You can tell because the rate of extraction increases year by year and the only proposals at the federal level must exacerbate it. The Financial Industrial Complex and other corporatists have been extracting wealth faster than the real economy can produce it, and have been for years. And they want more, and they will get it.
“Is it possible to avoid a second Great Depression?”
Honest statistics (shadowstats.com) clearly show that the U.S. economy has been in recession since 2005 and is still being liquidated, so an economic depression is inevitable. Since a depression requires structural reforms to reverse it, whereas a recession could be reversed by fiscal stimulus, the coming depression can be expected to continue to worsen indefinitely because there is no political will at all for the needed structural reforms.
Think Mexico. Once that’s sunk in, think Haiti.
I’m still standing by my predictions for food riots and old people dying in the streets, by the way.
PS: when I said that digging up the dirt on these EU banks was like shooting fish in a barrel – I didn’t mean to imply that the investigative journalism was not first rate.
The unaccountable always end up funding off the masses who know nothing and cannot do a thing other than do what they are told, which is keep employed so that more can be extracted off you – and if you are not employed its all your fault.
I just read a piece about a German mayor who was attacked for supporting immigrant housing in his town. I think the peasants are no longer as complacent as you think.
” I think the peasants are no longer as complacent as you think.”
This is why Mutti, can not under any circumstances, bail out DB unless, the rest of Europe wants the AFD running Germany.
An angry Germany dosent go left. It points that way, then goes right.
The NASDP was a Socialist, it was however, far to the right, of the left of the day, which was pure Communist.
Greetings Wolf, congrats on the site and just generally. First post… Well one of the first comments is that shorting banking stock is not a good plan. Other comments relate to whether or not the modern world economy is either salvageable or perpetual, despite the failings that most readers of this site will understand. Whatever the ‘black swan event’ is and however things play out what is pretty clear is that we can’t go on like this…
We live in a world where human productivity is measured by and rewarded in fiat currency. Yet the same fiat currency is generated by a few taps on a computer keyboard, or presumably nowadays by a few finger swipes.
I am not sure if the reference above to Ron Paul was a little tongue in cheek, but in my book anyone who presses for central bank transparency and the virtues of a currency that has some inherent value cannot be all bad. In fact, I think he’s one of the great guys. I digress…
Max Keiser in a recent interview on RT’s Boom And Bust likened the modern economy to the downing of the titanic. In 2008 we hit the iceberg. Central bank money printing has kept the ship afloat. 2016/2017 is when the inevitable will happen, ie the big reset as I believe Middelkoop terms it but I ain’t googled that just now so feel free to correct me.
Max is usually right, and I gather he still thinks Deutsche Bank will be the Black Swan. Or as he and others say who knows which snowflake will start the avalanche…
Anyhew, my take on it is a modern financial world which revolves around double entry bookkeeping (gotta love that term), fiat without any inherent value and obviously now central, peripheral banks and companies playing with the markets: it can’t end well…
“The world we have created is a product of our thinking… to change things for the better we first have to change our thinking”
Not verbatim but you get the idea. Luckily most Wolf Streeters are thinking correct about the economy I believe…
The author of this article seems much more interested in telling a negative story than in the objective truth. While most of the facts given are true they aren’t the whole story.
Since 2012, Bankia is run by Jose Ignacio Goirigolzarri, a proper banker who previously worked at BBVA. The bank’s consolidated profits last year were of 1 billion Euros last year and operating profits are 1.4 billion. Bankia also passed the stress tests of 2014.
Clearly this is a bank on the mend that is recovering from its disastrous management before 2012.
However, none of this is mentioned. Why?
“Clearly this is a bank on the mend that is recovering from its disastrous management before 2012.
However, none of this is mentioned. Why?”
Lets start with the stress test, which was designed, so that no bank that Brussels and the ECB, wanted not to fail, failed.
The Alleged profit is false, as no obviously unrecoverable NPL’s were written off against that profit. If the profit was a real cash in hand profit, a billion EUR of unrecoverable NPL’S should have been written off against it. Strengthening the real financial situation of the Bank.
DQ frequently goes overboard with his EUR and Euro bashing, but in this Spanish banking issue, he is on the correct side of the ledger.
What he frequently misses, for some reason, is that so many of these Club-Med banking problems originated from the greek banking fraud and greek fraudulent entry to the EUR. Yet only the Bank’s in Cyprus and the Cypriots, have ever been made to deal with these banking issues, the hard way, so far.
The global financial system has been trying to paper over the cracks wrought by greece since 08 and is failing to achieve anything. As the cracks are to big ,they can only be filled by a resolution of all the NPL’S in the EU. Which greece and the rest of club-med simpl dont want to do with anything apart from Taxpayers money which angers DQ and many others.
I fail to see how you can be honestly objective about NPL’S and positive about Bankia. Even If if it does have a better hand at the helm since 2012. It is not much better, as the NPL issue is not being promptly resolved.
Very well said. Congratulations.