Catalonia Chaos Begins to Squeeze Spain’s Financial Markets

Bank shares plunge. Money is already on the move.

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

Spain’s biggest political crisis of a generation, which has led to the complete breakdown of communication and understanding between its government in Madrid and the separatist region of Catalonia, is finally beginning to take its toll on the country’s financial markets.

Spain’s benchmark index, the Ibex 35, slumped nearly 3% following its worst day of trading since the Brexit vote last June. Spain’s 10-year risk premium — the differential between the yield on its 10-year bonds and the yield on Germany’s 10-year bonds — soared to 129 basis points. And that’s despite the fact that the ECB continues to buy Spanish debt hand over fist.

But it is the banks that have borne the brunt of the pain this week. On Monday, the first trading day after the independence referendum, they lost €4.84 billion in market value. Over the past five trading days, shares of the two biggest Catalan-based banks, Caixabank and Banco de Sabadell, have plunged respectively, 9% and 13%.

So tense is the situation that the CEOs of each bank felt compelled to release a statement today reassuring customers that they have all the means and tools necessary to protect their interests. Their contingency plans include the option of abandoning their base of operations in Catalonia and moving elsewhere — to Madrid in the case of Sabadell and Mallorca in the case of Caixabank.

But it wasn’t just Catalan banks that were caught up in today’s rout. Important Spanish banks with somewhat less exposure to Catalonia also saw their shares plunge. Santander, Spain’s only global systemically important bank, was down 3.8% on the day’s trading; BBVA, Spain’s second bank which has important operations in Catalonia after acquiring the failed saving bank Catalunya Caixa in 2015, fell 3.6%; and Bankia was also down 3.6%.

Standard & Poor’s today put Catalonia’s credit rating — at B+/B, it’s already deep into junk — on review for a downgrade of one notch or more, “if we believed that escalating political tensions between Catalonia’s government and Spain’s central government could put in question the full and timely refinancing of Catalonia’s short-term debt instruments or undermine the effectiveness of the central government’s financial support to Catalonia.” The threat of default moves a step closer.

Two days ago, Moody’s warned that the ratcheting-up of tensions between Spain and Catalonia has negative credit implications for Spain because it complicates the process of legislating policy and putting together its 2018 budget‍​.

It may have taken a long time, but investors are finally beginning to sit up and take notice of the events unfolding in Catalonia. As I reported yesterday, neither side of this conflict is showing any willingness to deescalate tensions.

The King of Spain, Felipe VI, speaking in a televised address on Tuesday night admonished the Catalan government for its “inadmissible disloyalty” and called on the Spanish state to restore constitutional order. Not once did he mention the word “dialogue” or the hundreds of people injured in the Spanish police raids on voting stations on Sunday.

In Brussels today the first Vice-President of the European Commission, Frans Timmermans, categorically ruled out the possibility of the EU playing a mediating role in the dispute. He also defended Rajoy’s use of rough justice on Sunday, arguing that every government has an obligation to uphold the rule of law and (pay close attention, EU citizens) “that can sometimes require the proportional use of force.”

At any moment Rajoy, with the King’s explicit support, could activate article 155 of Spain’s constitution, which would allow the central government to force the Catalan government to obey the laws of Spain. To that end, the Rajoy administration dispatched two military convoys to Barcelona today to beef up its coercive capabilities in the city as well as provide logistic support to the Civil Guard and National Police based there.

In other words, the markets are right to be jittery.

Both sides in this conflict are poised on the point of no return. Unless they can be pulled back from the brink, the next step that either side takes will bring the State institutions of Spain into direct confrontation with those of Catalonia. Once that happens, Spain’s political system and economy will be in uncharted territory, and the jitters we’ve seen in recent days could quickly give way to panic.

People in Catalonia are already moving their money. While some of the wealthiest are shifting their funds out of Spain altogether, most people are moving their money from their bank branch in Catalonia to a branch somewhere else in Spain. The money stays within the same financial institution, which even in the case of Caixabank and Sabadell is registered in Spain. As such, the money is moving around but most of it’s not actually leaving the system.

But it won’t take much for spooked investors to begin moving their money out of Spain en masse or for desperate Catalan depositors to take their savings out of the bank and deposit it under their mattress or somewhere slightly more imaginative. The sight of Spanish armed forces laying siege to Catalonia’s parliament building — just five blocks from where I live — will probably suffice.

If things spiral that far, Spain’s financial system will face its biggest test since 2012, the year that Bankia collapsed and Spain’s risk premium reached a staggering 630 basis points. And if the recent collapse of its sixth biggest bank, Banco Popular, just four months ago is any indication, it could have serious difficulty weathering the sort of disruption that appears to be on its way. By Don Quijones.

Will Spain trigger Article 155 of the Constitution? Read…  How Did Things Get So Bad in Catalonia?

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  50 comments for “Catalonia Chaos Begins to Squeeze Spain’s Financial Markets

  1. Nick Kelly says:

    The King is a disappointment. He could have called for a cooling- off period, talks etc. perhaps with himself sitting in.

    Of all the crap going on in the world, I find this one depressing. And in a place where persons still living can remember the last civil war.

    • Cynic says:

      One of my cousins met the king socially. he is not at all surprised by this: the man is a puppet and a nullity.

      His speech was disappointing to those who hoped against hope for something more sensible and conciliatory.

      Spain needs to rid itself of the ghastly Bourbon dynasty, who act as front-men for so much that is rotten.

  2. michael says:


    “that can sometimes require the proportional use of force.” wow.

    Thanks for the detailed reporting. Is it your opinion that Catalonia will physically defend their sovereignty? Perhaps their best tools are financial ones.

    • David Calder says:

      My thoughts too, Michael.. General strike the country to it’s knees. All of the King’s men can’t beat the people back to work and they can’t drive them all back to work at a point of a bayonet.. Scotland and the Slovak and Czech Republics were given an option to stay or leave whatever union they were in and that includes Greece.. Why not Catalonia? What had been a small majority for independence has become a flood thanks to truncheons and hobnail boots..

  3. Patricia Trudgeon says:

    The monarchy has clearly sided with Madrid’s government but that should not be a surprise to anyone who knows about Spanish history particularly the most recent one. From a judicial point of view, Spain’s constitution is breaking international law. You cannot have autonomy and indivisibility at the same time. The UN is very clear about the right of self determination. Spain is also in breach of article 2 of the EU constitution in its repression of free voting and should have invoked article 7 to vote on suspending Spain. The EU will and cannot play a mediation role because of its financial vested interests in keeping Spain one country. Should Catalonia secede, it is likely it would not take on its share of the debt burden. The debt to GDP ratio in Spain would shot up to unsustainable levels. As we already know Spain is not Greece and cannot be bailed out. In the mean time bank runs will accelerate and the country will be plunged into chaos. Catalonia seceding or not, I believe we are on the brink of Eurozone debt crisis no 2.

    • Gershon says:

      As we already know Spain is not Greece and cannot be bailed out. In the mean time bank runs will accelerate and the country will be plunged into chaos.

      Agree. Draghi’s “extend and pretend” using trillions in printing-press “stimulus” to paper over the gaping holes in bank balance sheets and liabilities, is about to run out of road to kick the can.

      Got popcorn?

    • d says:

      Unless somebody injects some sanity and a cooling off at the status quo. (something the King should have advocated)

      You could quiet easily be looking at much worse than a Euro 2 debt crisis.

      As many have noted the ECB does not have the ability to bailout Spain.

      Which means it would have to, bail it, in.

      No matter what happens after that, the euro wold be a very shaky item, nobody would really want to be holding.

      Great for German exports and cheap holidays. Horrendous if you get your wages in Eur and need to buy import’s.

      Let alone thinking about those who owe on foreign currency mortgages (Quiet a common practice in some Club-Med States).

      Then there is Banking. Should there be much more negativity in movement of Spanish bank stocks.

      Some Spanish banks will be needing BIG capital top ups and have MUCH LARGER NPL issues as when bank stock price changes negatively so do all the loan and leverage ratios.

      The types of movement we are seeing (progressive not sudden Pump and dump) suggest long term decisions, not a profit taking episode.

      The ECB ,will undoubtedly try to positively influence this “market issue” but it will have to do it very subtly. As getting caught will make it worse.

  4. Bernardo says:

    If New York wanted to seceed I’m sure all the commenters on this blog would maintain their pro Independence stance…
    A little balance on the reporting wouldn’t hurt as well.

    • Emanon says:

      I’m from Pennsylvania and I’d be absolutely delighted if the banksters in New York City left the Union.

      If NYC was left to its own devices it would go bankrupt. The only reason why the fat cats in the Big Apple are able to stay so fat is that they use the powers of the Federal Reserve and Congress to pillage the rest of the country.

      If New York leaves the Union then we could have a chance at some real reform of the banking and financial system. I’d steal an idea from North Dakota and decentralize the banking system so that we would have 49 state banks instead of a Federal Reserve System.

      • Gershon says:

        State-owned banks would almost certainly be more accountable to their customers, except in endemically-corrupt states like New Jersey and Maryland. Because if bankers showed the same larcenous, currency-debasing tendencies as the Fed, there would likely be a lamppost in their future in states like Idaho, Wyoming, and Montana.

        • chip javert says:


          Yea, having governments-owned banks has an even more glorious history than private ownership with government regulation.

          Argentina had some really great ideas along these lines.

      • Wolf Richter says:

        Germany has a ton of state-owned banks (some of them are the “Landesbanken” and others are banks like Nordbank). Many of them have gotten bailed out by the taxpayers (who own them). State-owned banks lend to those entities that politicians want them to lend to… even if the loans will never be repaid.

        Hypo Alpe-Adria bank, once owned by the small Austrian state of Carinthia, was a cesspool of corruption. When it blew up, the damage threatened to pull Carinthia into insolvency.

        State-owned banks look good for a long time until suddenly they don’t.

        • Wilbur58 says:


          Is this really you? Lately your comments don’t have a border box around them.

        • Wolf Richter says:

          Yes, it’s me. I’ve noticed the missing box too. I suspect the change came with the last software update (WordPress). Some people complained that the border box made it look like an obituary.

        • Wolf Richter says:

          Wilbur, actually, my first answer was wrong. The obituary frame around my comments is still there, but appears only on articles where I’m the author. On articles where I’m not the
          author (for example here), there is no obituary frame around my comment, and I’m just one of the guys.

        • d says:

          State Owned banks are great, as simple non-commercial savings banks.

          Where the worst NPL issue they can have, is over valued owner occupied houses.

          Beyond that, and they can quickly become HUGE taxpayer liabilities.

        • Emanon says:

          Well, we’ve had about nine or ten state governors in the US resign so far in the 21st century because of some sort of scandal or crime. That’s about one every two years or so.

          I presume that we’d have similar rates of crime if we had 50 state banks acting as mini-Feds instead of one big Fed.

          That *still* would be far less damaging than having one huge monolithic bank that is powerful enough to distort world stock markets and bond markets and controls just about everything except the currency markets (and that’s debatable).

          We need to make banks – including central banks – small enough to fail again, so that their failure won’t crash Western Civilization.

          We are way, way, way over-centralized and it’s having the same effect in the USA as it did in the USSR. Things slowly grind to a halt and the nation no longer has the economic oomph to keep its stuff together, so it splinters.

          It would be far better to choose to decentralize in an orderly manner now, rather than to do it in an implosion of chaos later.

        • tim says:

          i have a agree with Mr Richter.
          The HSH Nordbank owned by 2 federal states of Schleswig-Holstein and Hamburg gave guarentees of about 20 billion EUR.
          The politicians as part of the advisory board wanted to play in a league with the big boys what ever it takes. The lenders are not able to perform even after 3 years of only interest payments and some with no downpayments at all. Now the bank writes off almost every week 1 billion EURO in outstanding liabilities to lenders. They are not able to send these lenders to bankrubcies as they would have to correct the assets on their books which would be the last nail in the coffin.

          Long story short: the taxpayer will have to pay 20 billion until the bride is interesting for some foreign investors.

          Bz the way one after one is bought by the next bigger Landesbank so that the can can be kicked down the road.

    • MC says:

      I can assure you I know people from “Flyover Country” who would actually pledge money towards the independence of the States of California and New York.
      I’ve also met a man from upstate New York who actually had the idea of turning the City of New York into an independent nation and actually offered to start building a wall around it.


      • RR. says:

        Oh Yes,
        John Carpenter made the Movie about that many
        Years Ago.
        “Escape From New York” ;-)


      • Frederick says:

        I have a good friend in NY with undergraduate from Georgetown and PHD Berkeley works for Morgan Stanley and is fluent in 13 languages yet his girlfriend is a raving communist freak She must be good at something I’ve given up on that group of nuts Rumor has it Californians are just as crazy Wolf excluded of course

  5. Gershon says:

    With the Cyprus “bail-ins,” the ECB already has its template for legalized theft from account-holders. Depositors in Spain have undoubtedly taken notice and at the first sign of trouble will yank their funds, setting off a cascading series of bank failures and defaults as the long-deferred financial reckoning day finally makes its appearance.

    • fajensen says:

      The first trouble is Now, as in – Get the money you don’t need out Now!

      The message from Cyprus and Greece is that EU’s depositor insurance does not mean jack shit in practice, so, one must have at least one foreign bank or broker account, where the money can be transferred electronically at the first smell of trouble.

      What was clear with Cyprus and Greece is that “They” are experimenting, running different “asset forfeiture” models on targeted populations. The crisis in Spain has the smell of Ukraine over it, I hope I am mistaken in this.

    • chip javert says:


      Given all the political/financial crap the citizens of Spain and several other EU countries have tolerated, I seriously doubt most of them can tell up from down.

      Europeans have centuries of having their money stolen by “elites” and being used as cannon fodder. This is not an environment designed to systemically select for responsible behavior.

  6. Gershon says:

    Us and them
    And after all we’re only ordinary men
    Me and you
    God only knows
    It’s not what we would choose to do

    — Pink Floyd, “Us and Them”

  7. Davebee says:

    Could the Catalan crisis be the sharp pin the crazy global stock markets are so desperately searching for?
    Could be, I’m told it only took one obscure Austrian bank to trigger the 1929 crash.

    • Gershon says:

      The rise of public disaffection with Establishment parties that are adjuncts of the banksters and globalists in ripping off the 99% does not bode well for the stability of the ECB’s financial house of cards, held together only through trillions in QE funny money and German taxpayers letting themselves be put on the hook for the bad loans and limitless bailouts to the PIIGs. But now Frau Merkel has to contend with an angry “far right” that captured 13% of the vote and is likely to meet stiff resistance to her schemes to financially underpin Draghi’s “whatever it takes,” while also contending with a public security crisis caused by the million “guests” she invited in from the Middle East and North Africa.

      When the dominoes start to fall, I have a feeling the speed and ferocity of the ensuing financial collapse is going to stun those who put their misplaced faith in the central bankers and their asset bubbles.

    • Gregg says:

      Not quite 1929. It was actually 1931. But, you are right about the Great Depression’s trigger event.

      “Creditanstalt had to declare bankruptcy on 11 May 1931. This was one of the first major bank failures that initiated the Great Depression.”

      • Johnny A says:

        The bank failure was, of course, a calculated event planned by globalists. Re the upcoming changes for us 99%, bring it on. The limits and compression for this entrepreneur in a western state are so severe that I have noting to lose. Between the high tax rates on every level, the continually increasing regulation of everything and the complete wreckage of the real economy, there is almost no breath left for us working people.

        Go Catalonia!

    • George McDuffee says:

      RE: …I’m told it only took one obscure Austrian bank to trigger the 1929 crash.
      Actually the ’29 “crash” was the bursting of a local [US] stock market bubble. The situation was beginning to “self correct,” albeit at great social cost, by 1931 when Credit Anstalt, an Austrian bank created during the height of the Austro-Hungarian empire but now operating in the small post war country of Austria, collapsed after being forced to absorb a smaller insolvent bank as part of a rescue effort.

      At that time much of international finance was based on the trading of German WWI reparation claims, and a series of dodgy US loans to Germany to pay the claims to France and the UK, which could then repay their war loans and arms bought on credit from the US corporations. These international loans were sold to the “widows and orphans” who thus indirectly compensated the US arms manufacturers.

      The international finance system was highly interconnected and leveraged, and the insolvency of Credit Anstalt cascaded through the global system transforming what had been a localized asset bubble collapse into a global systemic failure. There was also large amounts of outright fraud involved,e. g. Kruger the “Swedish Match King”

  8. ian says:

    Why does Catalonia have a separate credit rating if it is not independent from Spain? Would Spain not step in if there was a default problem in Catalonia? If they would, then surely the credit risk would be the same as Spain’s, if not, it seems a tenuous argument to say they are indivisible from Spain?
    US states have credit ratings as do Australian states but I am pretty sure Scotland for example doesn’t, where is the line drawn and why?

    • d says:

      Catalionia as we write.

      still has a regional, Govt, Tax structure, And debt, Much like many US and AU States.

      One of the ramifications of using article 155 is the negative effects it will have and the confusion it will bring to the debts of Catalonia ultimately underwritten by Span and of Spain itself.

      Talking Tough and waving Article 155 is one thing actually using it could be catastrophic financially, for both Spain and Catalonia.

      Something triggers the wrong algo and all H$%^ will break loose, very fast.

      The strain on the Eur of that, HUGE.

      IMHO rajoy should be certified and locked up. Now.

    • MC says:

      To have a credit rating with Standard & Poor’s or another credit rating agency two things are needed:
      1)The legal ability to issue bonds
      2)Paying said rating agency to be given a rating

      Catalonia, like other comunidades in Spain, has the legal ability to issue bonds and hence can apply for a rating by paying a fee.

      Apart from Navarra and Euskadi, all Spanish Comunidades have a mixed budget, by which they retain 60% (I am quoting from memory so I am probably wrong) of taxes levied locally and then get more resources from Madrid, chiefly to help pay from healthcare and education. These resources are assigned every quarter.
      On top of this each comunidad can issue bonds within certain limits set by law, albeit in recent years the Banco de Espana (an ECB member) has pretty much absorbed all new issues and bought large amounts of older ones. This has hollowed out the original idea of rating, but it’s a common issue with bonds in Europe.

    • Wolf Richter says:

      All city and state entities that want to issue their own bonds and borrow money in their own name need a credit rating. In the US, this can be a state, a city, a school district within a city, a water agency, etc.

      Catalonia’s credit rating is very low, so it’s expensive for it to issue new bonds. To stay afloat, it has become financially very dependent on Spain and borrows from Spain. So in a default, it would not only default on bonds held by private-sector bondholders but also on debt owed to Spain. And Spain would get into deep financial trouble.

      • d says:

        “Catalonia’s credit rating is very low, so it’s expensive for it to issue new bonds. To stay afloat, it has become financially very dependent on Spain.”

        Sould that not be

        To stay afloat, it has become dependent on the minuscule % of tax returned to it by Spain from the massive amount of tax Spain collects in Catalonia??????????

        Spain, Cant live without the TAX IT GETS from Catalonia, perhaps nether can live without the othe,r long term.

        Rajoy unwound the Amendment giving Catalonia more of it’s tax take, which was the catylist that started all this independence garbage afresh.

        Having lived in a region that has been abused by the administration like Catalonia has for decades. I can see where their argument come from.

        As when the Economy recedes, the unfair distribution of the regional tax take, becomes even more unfair.

        As the administration is effectively taking tax from certain Selected regions, to pave the streets outside their windows (or their voters windows) in Gold.

        When times are good

        They can get away with that. Not when times are Bad.

  9. Mugsy says:

    The worse the crisis the more the central banks pump….won’t be long before the banks own all the stocks and bonds while the taxpayers have all the government debt…”big wheels keep on turning….you don’t have to worry cause you got no money…..rollin, rollin down the gutter”.

  10. Patricia Trudgeon says:

    Catalonia does not have a separate rating to Spain. If Catalonia defaults on its debt, it is effectively a Spanish default. We know all too well rating agencies are politicallly motivated since they get paid by governments, in this case the Spanish governement. It is part of the rhetoric against Catalonia but it is fundamentally flawed.

    • d says:

      Catalonia does not have a separate rating to Spain.


      If Catalonia defaults on its debt, it is effectively a Spanish default.

      BIG YES.

  11. Steve finney says:

    Thanks for the updates Mr. Wolf – that is me finished with the EU.

    Uniformed thugs throwing women down flights of stairs being just one of the many examples of what the SA would be proud of, being declared as proportionate is for me the last straw.

  12. unit472 says:

    Should a Republic of Catalonia be born may I suggest it feature a ‘black swan’ on its flag!

  13. Hanzzz Junker says:

    Buy Bitcoin..problem solved

  14. Gershon says:

    The Catalonian independence movement leaders strike me as an unscrupulous bunch. I suspect at this moment there are negotiations going on in smokey back rooms to establish just how much Spain and the banks are going to increase the the pro-independence leaders’ net worth by before they “come around” and decide to delay any near-term announcement of independence.

    • d says:

      Anybody, who had an real Knowledge of the history of the issue, would not make such an insulting comment.

    • Raymond C Rogers says:

      And you trust Bloomberg who has a great interest in holding things together?

  15. Another Anon says:

    Lubos Motl a Czech physicist, writes in his blog that the Guardia’s behavior
    on Sunday was more violent than the Soviet and other East Bloc soldiers when they
    invaded Czechoslovakia in 1968.

    • d says:

      You are the first to note that here not the first to note it.

      The Major difference being, Madrid isn’t using tanks, Yet.

      The Soviets pushed old ladies around. Regularly.

      I have no evidence of them ever striking old ladies with truncheons, the way the Guardia did on Sunday.

      The Eu Must public ask strong question of Madrid or shred forever what is left of its credibility and impartiality.

      I am confident the eastern block Visgard Etc will throw this unrestrained and uncensored brutality by Madrid, in the face of brussels, in the coming, and growing disputes, repeatedly..

  16. Gershon says:

    Spain is apologizing for the police violence against Catalonians taking part in the illegal referendum, and taking a softer line – for now.

  17. Stevedcfc72 says:

    The one word missing from all the news stories on this issue is ‘compromise’.

    Surely even a fairly new democratic country such as Spain both sides can sit around the table and act like adults?

    Massive shame a great country who’s politicians and royalty are letting it down badly.

    Fiscally no-one wins.

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