Spanish Bank Stress Tests: The Winners and the Sinners

By Tom
Published on

Stress tests for Spanish banks. The results are in from the auditor stress-test which is a precondition to release the EU bank aid of 100 bio. EUR for recapitalising the banks.


The sinners are:

24.7 bio. EUR Bankia

 Banco Financiero de Ahorros. A nationalised merger of: Caja Madrid, Bancaja, Caixa Laietana, Caja Rioja, Caja Ávila and Caja Segovia.

10.8 bio. EUR CatalunyaBank

Nationalised merger of Caja de Ahorros de Catalunya, Tarragona and Manresa.

7.2 bio. EUR Novagalicia Banco

Nationalised merger of Caixa Galicia and Caixanova.

3.5 bio. EUR Banco de Valencia


3.2 bio. EUR Banco Popular

The only non-nationalised, non-mergered.

2.2 bio. EUR Banco Mare Nostrum

A merger of Cajamurcia, Caixa Penedès, CajaGranada and Sa Nostra.

2.1 bio. EUR Ibercaja, Caja3 and Liberbank

In the proces of merger.

2.1 bio. EUR Banco Ceiss

It might merger with others to bring down the capital need.

That totals up to 55.8 bio. EUR  a bit more than the claimed 53.7 bio. But then who cares. It is always astonishing that auditors can give you an answer with 5 digits precision that is exactly wrong!

This is the claimed worst case scenario presupposing a 1.7% drop in GDP in contrast to the baseline scenario of a drop of 1% in GDP.

This does not add up to the 100 bio. EUR, which was German Finance Minister Wolfgang Schäuble’s rough estimate.

These figures do NOT include the largest banks: Banco Santander, S.A. (NYSE:SAN) (NYSE:BSBR), Banco Bilbao Vizcaya Argentaria SA (NYSE:BBVA)  and the merger of  Caixabank y Cívica; Kutxabank; nor the merger of Sabadell and la CAM;  nor Bankinter, nor the merger of Unicaja y Caja España-Duero . Keeping track of the size of the respective manure heaps is difficult to impossible.

The point is that the so called “systemically vital” banks have been more or less excluded from the survey and given a bill of health – apparently without going into too much detail.


Given the circumstances I’ll take figures from a German Finance Minister given in drunken stupor over the conscientious deliberations of auditors – any day.

One should note the notoriously poor track record of such stress tests. They are based on figures from banks that – to put it mildly – have little relation to anything but faith in divine intervention. Secondly they assume that the real economy will be able and willing to pour all growth into the yawning abyss of bank losses. We see how growth  – what little there is – is not going into either consumption nor investment, they simply disappear into savings, but not service on loans.

The banks considered are only the small fry as the “systemically vital” banks will have to be dealt with in quite another manner through a common European bank inspection under ECB. Draghi has great ambitions for it, but Schäuble has his reservations about both the desirability and practicality of inspecting 6000 European banks from a central institution.

The solution might very well lie somewhere in between, as banks are being merged with the speed born of desperation. Normally in banking crisis the major banks guarantee the depositors and take losses from bad banks – this not out of the goodness of their fossilised hearts, but to avoid a general bank run – which is liable to hurt the largest banks most. Now that solution is nowhere applicable in Spain for two reasons:

a)      Said depositors have long since left the country in a wild scramble – which was what brought the present humiliating situation about. That is probably the background for Schäubles estimate, as he knows very well how much money has fled into German sovereign bonds. To Germany this is very much a case of lending the Spaniards their own money – for a small fee.

b)      The major banks are in no position to absorb the losses as their claims to profitability lacks credulity.

Things are moving very rapidly these days and what was a conclusion yesterday is today a wrong assumption.

This is crisis management: Split up the problems into smaller portions and disentangle webs.

The present report is mainly about the losses and bad banks involved with real estate and presuppose that real estate prices won’t deteriorate any further. To achieve this sort of stabilisation the housing market will have to be killed of all together in Spain and elsewhere in Europe. As there are 1½ dwellings pr. household in Spain that will be difficult to achieve if it weren’t because there is no financing for purchases at a realistic price – that realistic price would indeed be very low, at those households not deeply insolvent are low income households. Let’s be realistic: The Spanish housing market and bank system is never going to arise from this again. And that is the easy part of the finance sector problem.

The far bigger problem is the “systemic important” banks. These are not to be merged – on the contrary, they are to be minced up and their branches in other EU countries are to be closed – but that is tomorrows worry. If the major banks think they are more important than the economies of Europe, they have another thing coming.

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