Please find below a selection of news excerpts and information that relate to the Spanish mortgage and property market.

A reprinted question and answer session regarding the Spanish property market. There are some interesting points made, and we agree about the outlook for the Spanish market, although the attitude of many banks in Spain is somewhat harsher than suggested at the moment. Keep up to date with the latest market conditions by following our blogs; http://www.blog.amortgageinspain.com and http://www.blog.europamortgages.com
The Spanish property market - The truth from those who know
17 March 2009

Many commentators from estate agents to currency experts can offer their opinions on the Spanish Property market from the comfort of their plush London offices – but are they close enough to the truth? The following Qs have been A’d by real Spanish property experts. Experts who have been in the business on Iberian soil for years.

The gurus:
Chris Mercer (CM) - Founder of Mercers in 1993 and with over 25 years experience in selling freehold Spanish properties. Chris now has offices in Mazarron on the Costa Cálida (established in 1999) and the Andalusian city of Jerez (established in 2005).

Andrew Benitz (AB) - Founder of Titan Properties in 2004 and with previous experience at Deutsche Bank as Research Analyst within the Nº1 ranked Global Equity Capital Markets team. Andrew has offices in the traditional Spanish fishing village of El Rompido on the western Costa de la Luz.

What are you observing on the ground right now in your local property market?
CM – “Considering the current economic situation, we are quite surprised as our rate of enquiries is actually increasing. Not only is this very welcome but we suspect it’s bucking the trend for Spanish property in general. These enquiries are from both Spanish nationals and Brits as well as other Northern Europeans. We made nine sales in the first seven weeks of 2009 which is very encouraging. In Jerez our sales are primarily to the Spanish and in Mazarron they’re split 70-30 in favour of British buyers. Price is most probably the biggest pull-factor in this climate. On the Costa Cálida we have two bedroom terraced properties on an established golf resort for as little as 50,000 euros. Meanwhile vendors are dropping asking prices across the board in both Jerez and Mazarron – as much as 50% in some cases but 20% is a general rule of thumb.”

AB – “Interest in Spanish property hasn’t really dwindled, it’s just the type of buyer who’s changed. Investors have all-but disappeared and it’s the lifestyle buyer who has stepped in keen to find a holiday home in the sunshine at a good price. Everyone wants a deal and they are around but the property bargain hunter must consider the dynamics of the local market prior to purchase. For example a 10% discount on a property in western Costa de la Luz, where median prices have yet to fall, is clearly a better deal than a 25% discount on a property in Costa del Sol, where median prices have fallen by more than 30%. Having said that vendors and developers are now at least open to offers, a scenario that never occurred as little as a year or so ago. In this market prices are very much dictated by the financial circumstances of the vendor - whether an individual or developer - and a good agent will know which properties in its portfolio are up for negotiation.”

What part are the banks playing in the current state of the Spanish property market?
CM – “Mortgages are certainly getting harder to come by as the banks have limited funds and want limited exposure to bad debts. However, most banks will still offer up to 60% loan-to-value for non-residents which, incidentally, was the average rate of lending for foreigners up until around eight years ago when they suddenly decided to increase that percentage – perhaps to their detriment. It should also be remembered that the majority of British buyers up until around six years ago would use UK-sourced finance, usually in the form of a remortgages, which of course now could be very beneficial. Certainly mortgage rates in the UK will be more competitive than in Spain.”

AB – “Even through the boom times most Spanish banks maintained traditional lending practices for individual mortgage lending, with income earnings of the lender being the key factor in the bank’s decision to approve a mortgage application. Buy-to-let mortgages never took off in Spain. These policies still stand and a client with good income earnings – and low debt – can still get a mortgage of 70 or even 80% loan-to-value. It’s irrational exuberance in construction lending to developers that has given Spanish banks a real headache. Many became quasi developers overvaluing and consequently over-lending to whole development projects. Bank repossessions here in Spain are made up mainly from unsold new developments, but I caution clients on buying these types of ‘discounted property’. Even if they are sold at mortgage value these properties are probably still overvalued to the rest of the market.”

What’s your prognosis on the future for Spanish property?
CM – “Certainly in the short-term I do not expect much to change, at least not until the third or fourth quarter of 2009. But for those in a position to buy, 2009 is going to be an excellent year. These second home hunters will be able to pick up quality property at extremely attractive prices. We are not seeing many investors at the moment, apart from the occasional predatory purchasers who see the potential in bargains. I doubt that this will change until mid-2010 leaving those motivated by lifestyle as the main buyers.”

AB – “We truly believe that the worst has or is passing. There are plenty of clients out there with both the desire and the cash to buy Spanish property, it’s just a question of restoring their confidence to spend it. With interest rates at record lows in the UK, people with cash in the bank are now looking for alternative investment opportunities and property is at the top of the list for good quality long term investments. The main problem standing in the way of us and the British buyer right now is the exchange rate, a stronger pound would certainly help more deals to be done and hopefully that’s not too far off. The bad economic news across Europe has still not been properly priced into the euro, so I think the euro will weaken back to 1.3 levels before too long.”

How does Spain outmanouevre the competition?
CM – “Many of the emerging markets such as Eastern Europe, Dubai and so on have now been seen for what they really are – something of a fad – and the established markets of Spain, France, the USA and Portugal will once again become the main focus for the vast majority of British buyers. Interest levels in these markets hasn’t necessarily dropped over the past ten years, it’s just that with the arrival of the emerging markets the ‘pot’ of potential buyers has been spread more thinly. In times of economic recession, the stability and familiarity offered by traditional markets – Spain in particular – is highly reassuring. Little wonder therefore that Spain moved up from 14th place in January of this year to 4th place in The Move Channel’s most searched property destination and still ranks at number one in A Place in the Sun’s Top 20 favourite destinations for 2008, just as it did in 2007.”

AB – “Crisis or no crisis, the British buying public still hankers after a warm climate, familiar culture, strong modern infrastructure and clean beaches all within easy access of the UK via low-cost flights as well as overland transport options. Spain cannot be beaten. Overseas buyers are finally getting back to basics, reacquainting themselves with the markets they first fell in love with decades ago, and the reasons why, and that means Dubai and Bulgaria are ‘out’ whilst Spain and Portugal are very much ‘in’.


An article below about the unemployment problems that are affecting many parts of Spain. For many years there were white villages that had a steady influx of foreign buyers that would buy old townhouses and renovate, thus employing local craftsmen and pumping money into the local economies. This has now dried up and the Spanish workers and builders have little work as their compatriots can’t afford to build or have work done on their own properties. Can these workers go back to the traditional farm jobs that once employed them? It seems unlikely, so what will they do?
Spanish town struggles with 75% unemployment
LA LANTEJUELA, Spain (AFP) — On the outskirts of this town of white-washed houses in southwestern Spain, dozens of warehouses where bricks, marble and other building materials were once produced lie idle since a decade-long economic boom came to an abrupt end last year.
During the height of the country's credit-fueled property boom the dozens of small and medium sized building firms which sprang up in La Lantejuela employed up to 80 percent of the town's workers as local residents abandoned farm work for more lucrative jobs in construction.
But those jobs began to quickly disappear last year as the global credit crunch exacerbated a slowdown that was already underway in Spain's real estate sector.
Today nearly 75 percent of the town's economically active population is jobless, one of the highest unemployment rates in Spain, which in turn is the nation with the highest jobless rate in the 27-nation European Union.
Between the end of 2007 and the end of last year the number of unemployed in La Lantejuela jumped by 132 percent, according to mayor Juan Vega.
"This is not viable," he said, adding he felt "powerless" before the dozens of struggling local residents who file through his office every day to ask for help.
"They have gone into debt to build a house, buy a car. Today they cannot pay back the loans and the companies are threatening to cut off their water and electricity," said Vega, who belongs to the United Left coalition.
Just a decade ago most workers in the town of some 3,800 people nestled in the Andalucian countryside between Seville and Cordoba had jobs as farm labourers.
"But once the construction sector had its boom, everyone raced towards this more lucrative sector," said Vega.
The town's decline is a microcosm of the situation throughout Spain, where the bubble burst on the property market last year and battered the nation's economy.
Spain's unemployment rate hit 14.8 percent in January after the impact of the collapse in the building sector spread to other areas, and many economists predict it will continue to rise to hit 20 percent next year.
To draw attention to the plight of La Lantejuela, the mayor of the town locked himself in his office for 24 hours in February, an act which got national media coverage.
"What saves us is family solidarity. Many couples with children have already returned to live with their parents or they go eat at their parents' house several times a week," said Vega.
With no job since August, mortgage payments to make and a teenage daughter to raise, Jose Andujar Martin said he had no choice but to return to the farm work that he left four years ago for higher-paying work in construction.
"Even if I have no desire to do it, I will certainly go back to picking strawberries, as I did for 10 years," Martin, 48, said as he sat at the counter at one of the town's bars before a bottle of beer.
Faced with a sharp decline in demand, Antonio Moreno is struggling to keep his aluminium siding plant, which employed 20 people as recently as last year, alive.
"In a few months orders dropped, clients stopped paying, I had to let my employees go and I only work now with my two children," the 59-year-old said.
The government's response to Spain's first recession in 15 years has been an 11-billion-euro (14-billion-dollar) spending plan which aims to create more than 300,000 jobs, mainly through 31,000 public works projects across the country.
The town of La Lantejuela will receive 672,000 euros from this fund.
"But that is enough to provide work for three days for each of the 1,022 job seekers in the town," said Vega.

5th February 2009
From REUTERS - a story questioning the level of provisions for bad debt held by Spanish banks
Spanish banks' provisions look vulnerable
Spain's banks have withstood the financial crisis better than their European peers, but their uniquely high provisions against bad debts will start to run dry unless the economy improves next year.
As big names in U.S. and European banking have buckled, Spanish banks have so far withstood defaults from failing property developers due to high provisions imposed upon them by the Bank of Spain at the end of Spain's last recession.
But in 2009 they will be hit by a fresh wave of bad debts -- this time from householders who have lost their jobs and cannot pay their mortgages. If the bad news does not end in 2010, Spanish banks could finally be dragged down by the collapse of the country's property bubble.
"If the downturn lasts through 2009 and 2010, the banks will survive the crisis. But if it extends beyond 2010, then they could be in difficulty," Domingo Miron, partner at the Accenture consultancy, said.
While leading Spanish banks have avoided the huge losses posted by other global institutions in 2008, and even reported respectable profits, they have sacrificed some earnings to increase loan loss provisions and dipped into their so-called generic provisions cushion.
"The chinks in the armour are showing and the banks are using generic provisions as bad loans soar. 2009 is going to be a hard year," banking professor and former Dean at the Esade Business School Robert Tornabell said.
JP Morgan analysts expect most banks to opt for accelerated use of their provisions cushion throughout 2009 and 2010 as asset quality deteriorates.
Of the banks which have reported 2008 results so far, Citigroup analysts highlighted high provisions of 462 million euros (320.47 million pounds) at Popular (POP.MC), driven by the steep rise in "voluntary" provisions and property assets impairments.
JP Morgan expects Popular's generic provisions to be enough for the rest of 2009.
Sabadell SAB.MC has not released any of its generic provisions as yet -- using capital gains from asset sales to boost provisioning. But JP Morgan believes it will follow its peers in 2009 and 2010 and begin using its rainy day fund.
CONSERVATIVE PROVISIONING
In the wake of Spain's last economic downturn in 1993, the Bank of Spain obliged all banks and savings banks to set up a special provisions fund to cover future loan losses.
The fund was charged against results and calculated by each institution as a percentage of their total lending.
This provisions cushion has remained mostly intact in the case of all the banks since the regulation was implemented as Spain enjoyed years of an economic bonanza.
Thanks to this, investors have not given Spanish banks nearly so hard a time as they have their foreign rivals.
Shares in Spain's biggest bank, Santander (SAN.MC), lost about 43 percent of their value in 2008, and its nearest rival, BBVA (BBVA.MC), slightly more at 48 percent. In comparison, Citigroup (C.N) has sunk almost 90 percent, RBS (RBS.L) 93 percent and Deutsche Bank (DBKGn.DE) has retreated 73 percent.
Nonetheless, the government, which has only had to provide a fraction of the amount of aid to banks compared with elsewhere in Europe, and has not had to take shares in any institution, has warned that consolidation in the sector is likely.
While the Spanish banking system has dodged the U.S. subprime bullets over the last 18 months, bankers now face a home market in which unemployment has nearly doubled to nearly 14 percent and is still rising fast.
"The property-related loan losses have now been more or less absorbed by the main banks .... they are almost a thing of the past. The problem in 2009 will not be property sector-related bad debts, but mortgage defaults as unemployment soars," Miron said.
But the banks can still report profits even with a bad loans ratio of between 7 and 8 percent, he said.
STRESS TEST
The bigger banks that have announced 2008 results so far have reported non-performing loans ratios of 1.4-2.8 percent, although Spain's second largest savings bank Caja Madrid CAJAM.UL sent shivers down spines when it forecast a ratio of 7 percent for this year, up from 4.87 percent end-2008.
The Bank of Spain says an NPL ratio of 9 percent will represent a stress test for the banks, although it thinks they have sufficient generic provisions and capacity for one-time gains from potential asset sales over the next two years to survive.
"I think that is over optimistic ... In February some banks will have already exceeded a ratio of 4 percent," Tornabell said.
"And we will see increasing amounts of bad debts in the next six months. In my opinion the ratio of doubtful assets to total credit could be on average about 5 percent," he said.
The banks themselves have been upbeat about how long their generic provisions can see them through the crisis, with BBVA, Popular and Banesto (BTO.MC) forecasting their provisions will last through 2009 and 2010.
Miron ruled out any Spanish bank requiring a government bailout, so long as the economy begins to improve by 2011.
A leading U.S. asset manager agreed, although he said Spain's savings banks, which are more exposed to the Spanish property market, are "definitely suffering."
"But the Bank of Spain would push for consolidation in that sector before any bailout was necessary," he said.

From FORBES. Santander has become one of the biggest and most powerful players in Europe, but is it running into trouble? 

Santander's Risky Business
The bank posts a strong profit but its big stakes in the British and Spanish mortgage markets may come back to bite.
Spain's Banco Santander might have made a successful push into the British mortgage market, but this could prove a risky strategy for the bank whose annual results showed a sharp increase in loan loss charges on Thursday.
Shares of the Spanish bank fell 2.0%, or 12 euro cents (15 cents), to 6.03 euros ($7.73) in Madrid as it announced that loans in arrears as a percentage of its total lending climbed to 2.04% at the end of December, from 0.95% a year ago, revealing that the economic downturn in Spain and Britain was hitting Santander hard. In Spain, the rate of bad loans rose to 2.58%, costing the bank 3.6 billion euros ($4.6 billlion).
The scale of loan losses for Santander (nyse: STD - news - people ) are crucial, as analysts await the impact of a recession in Britain and Spain (which have both suffered from property market bubbles) and a slowdown in South America, the Spanish bank's three main markets. Santander managed to avoid losses on subprime mortgage securities thanks to tough banking regulations in Spain, so it has been taking advantage of its relatively strong balance sheet to expand its lending business, particularly in the United Kingdom.
At Abbey National, the British mortgage business Santander bought in 2004, net mortgage lending rose 28.0% to 11.1 billion pounds ($14.3 billion) during 2008, taking its share of the total British mortgage market to 28.9% from 8.0%, benefiting as its rivals with weaker balance sheets were less reluctant to lend.
Yet while this push could position Santander in prime position at the end of the downturn, it is still a risky strategy, particularly given the increasingly dismal outlook for the British economy (See "Santander's Big Test.")
The bank is putting a brave face on the situation, keeping its annual dividend for 2008 at the same level as the previous year.
Santander had pre-announced its headline results last week, saying net profit for the fourth quarter fell 24.0% to 1.9 billion euros ($2.4 billion), while annual profits fell 2.0% to 8.9 billion euros ($11.4 billion). This is in stark contrast to Deutsche Bank (nyse: DB - news - people ), which reported a $5.0 billion loss for 2008.
Santander was forced to set aside 500.0 million euros ($641.3 million) to cover compensation for clients of its Optimal Investment Fund, which was exposed to Bernard Madoff's $50.0 billion alleged fraud.

Spain Feels Jobless Pain 

Spanish unemployment hit its biggest ever monthly rise in January, according to the country's Labor Ministry.
Unemployment rose by 199,000 last month, or 6.0%, bringing the total to 3.3 million, the highest jump on record since Spain started using its current method for recording ranks in 1996.
Over the past year, unemployment has reached more than 1.0 million, and at 14.4%, the country's rate is the highest in the European Union. Spanish unemployment by far exceeds jobless rates in other E.U. countries with the Netherlands' rate of 2.7%, the U.K.'s 6.1% and France's 7.9%, according to the E.U.'s statistics office Eurostat.
"We continue to be affected by the serious international financial crisis, the lack of liquidity and the fall in consumer spending," said Maravillas Rojo, Spain's employment secretary.
Analysts have warned things could get worse. Martin Van Vliet, a senior economist at ING, expects Spanish unemployment to reach 18.0% by the beginning of 2010. Van Vliet's forecast exceeds that of the European Commission, which expects unemployment levels to increase by 16.1% in 2010 and 18.7% the following year.
"Unemployment is posing a major threat to the ailing housing sector," Van Vliet said. "Once people lose their jobs, it becomes difficult to get a job and then they struggle to service their monthly mortgage payments."
Spain's property sector has been one of the worst hit during the current subprime mortgage crisis with home builders filing for administration as prices fall and buyers are unable to secure financing. Last year, Martinsa Fadesa was one of many companies to go bust as it struggled to raise funds and meet debt payments. (See "Party Is Over For Martinsa Fadesa.")
"The danger is that the surge in unemployment could feed back into an even steeper downturn in the housing crisis," said Van Vliet. You could end up in a situation where people won't be able to retain their homes and this would put more pressure on the market. The government needs to break the vicious cycle very quickly."


A news story below from the Economic Times, commenting on the Euribor interbank rates and the benefits for holders of Spanish mortgages.

Eurozone banks still stocking cash

FRANKFURT: The European Central Bank saw strong demand for its weekly loans on Monday, with 600 commercial banks snapping up more than 216 bn euros
(300 bn dollars) although the ECB forecast a surplus of cash on interbank markets.
Commercial banks also parked higher amounts of cash in overnight accounts with the ECB even as tension on interbank markets eased, which Bank of America economist Gilles Moec termed a "slightly scary" trend by commercial banks.
"It means they are stressed that they want to keep as much liquidity as possible, and that they don't find any other use for their liquidity," Moec told media.
"On the positive side of things, interbank interest rates are falling," he added, noting that the reference three-month London Interbank Offered Rate (LIBOR) for interbank loans on Monday was 2.84 per cent.
That was much closer to the ECB's benchmark lending rate of 2.50 per cent than has been the case for much of 2008, indicating that tension had eased on markets that are crucial for extending credit to the wider economy.
"That is extremely helpful," Moec explained, "for Spanish mortgage holders for example who were directly hit by the increase in the LIBOR" last year.
But, the economist continued, "when you look at the continuing skewness of bank behaviour towards liquidity there is no change over the last few months."
The ECB and other major central banks have supplied unlimited amounts of cash to money markets at low fixed interest rates to jumpstart bank lending, but the banks continue to hoard cash.
They prefer to pay a small penalty by depositing cash back with the central bank rather than to lend it to other banks amid chronic insecurity over their partner's creditworthiness, Moec said.
Money markets froze after the US market for high-risk, or subprime mortgages collapsed in mid 2007, and locked tighter after the US investment bank Lehman Brothers declared bankruptcy in mid September.
Central banks have thus become essentially the only providers of credit, assuming a key role that commercial banks used to have with respect to one another.
"We have the ECB taking over the interbank market but banks have not changed," Moec concluded.

17th Dec. Reuters reports on the increasing level of bad debts in Spanish savings banks.

Spain's regional savings banks, responsible for about half the country's loans, could see their non-performing loan ratio almost triple to nearly 9 percent by 2010, the head of the savings banks association said on Tuesday.
The head of the Spanish Savings Banks' Confederation (CECA), Jose Ramon Quintas, told Reuters in an interview the banks would weather the storm.
"What has saved us, and what will continue to save us with respect to bad loans, is the record low base from which we began," Quintas said. "We are about to live through a very difficult 18 months, but I'm not worried," he said.
The savings banks' non-performing loans ratio should hit 3.7 percent by end-2008, close to 7 percent next year and near 9 percent by 2010 as bad debts mount during the sharp contraction in what had been a booming property market, he said.
Savings banks are more exposed to Spain's heavily leveraged property sector, and to struggling property companies, analysts said.
In a worst-case scenario for the Spanish economy, which the most pessimistic analysts think could contract by more than 3 percent in 2009, saving banks could use part of their profits usually dedicated to social projects as a cushion, Quintas said.
The savings banks, which have their origins as pawn brokers in the 19th century and to this day maintain close ties to local governments, are obliged to dedicate a large portion of their profits to social projects.
"I am strongly recommending that the banks transfer this year's and next year's profits to provisions (against bad loans) more than that expected by law," Quintas said. "It's very important the banks don't start to register losses," he added.
The social projects will not be affected due to accumulated funds saved from previous years, Quintas said.
"This reduced payment to social projects means they could use their own resources to recapitalise."
While Spain's relatively conservative regulation has meant that its banks have avoided the worst of the credit crisis, the Bank of Spain has said that it expects consolidation among the 45 savings banks.
REGIONAL OBSTACLES
Rules impeding tie-ups between savings banks in different regions and local politics are making it harder for consolidation, which Quintas agreed could be beneficial, to go ahead.
"There are potential merger operations which would change the Spanish banking system. It's absurd that these rely on a necessarily geographically limited vision of a regional authority," he said.
On European governments' moves to help their banking systems, Quintas said governments should also offer guarantees to the interbank lending system so interest rate cuts by Central Banks would transfer to consumers more effectively.
More than 90 percent of Spanish mortgages are floating rates linked to the benchmark Euribor. However, while ECB referential rates have fallen to 2.5 percent, the Euribor is more than 4 percent.
The spread between official and interbank rates remains stretched due to banks' reluctance to lend amongst each other, Quintas noted.
"A governmental guarantee for interbank loans would bring down the pressure on mortgage loan rates for families and reduce bad loans," he said.


From the FT, comment on the state of the Spanish economy, and banking sector.

Iberian apprehension

At first glance, the recent career paths of the European bankers who masterminded last year’s audacious €72bn ($98bn, £64bn) takeover and break-up of ABN Amro could hardly be more different.
With chaos sweeping through global markets, Sir Fred Goodwin resigned as chief executive of Royal Bank of Scotland and apologised to investors after his bank was rescued by the UK government. Maurice Lippens stepped down as Fortis chairman as that bank’s operations were nationalised in the Netherlands and put up for sale by the Belgian authorities.
EDITOR’S CHOICE
Wary savers flee from banks to Poste Italiane - Dec-07Latvia takes over Parex after run on bank - Nov-09Analysts warn EU banks still need injections - Nov-06Swedish lenders move to bolster defences - Oct-27Belgium injects €3.5bn into KBC - Oct-27D Postbank opts for rights offer over state aid - Oct-27By contrast, Emilio Botín, the 74-year-old chairman of Santander, has been firmly in place and in ebullient mood – at least until weekend revelations of the alleged $50bn (£33bn, €37bn) fraud committed by Bernard Madoff, the US asset manager.
Mr Botín was smiling because he had bolstered Santander’s capital ratios with a risky but successful €7.2bn rights issue; it ended oversubscribed. Santander, the biggest bank in the eurozone by market capitalisation, has said it is broadly on target to make a net profit of €10bn this year. This month, it was named “bank of the year” for Spain, Portugal and Latin America by The Banker magazine (part of the Financial Times Group).
BBVA, the number two Spanish bank and one that prides itself on the success of its conservative strategy under chairman Francisco González, looked similarly secure. It had increased its underlying net profit by more than 9 per cent to €4.3bn in the first nine months compared with the same period last year.
Spanish banks thus appeared to have escaped the direct effects of the global financial crisis – but they now face two serious challenges.
Santander chairman Emilio Botín (right) and José Luis Rodríguez Zapatero, Spain’s prime minister. The government has offered banks up to €250bn in loan guarantees and asset purchases
First, they are discovering that they are not as protected as they had hoped from the indirect impacts of the crisis. In the last two days, Santander has admitted that customers of Optimal, its Swiss-based hedge funds management arm, may have lost up to €2.3bn through investments with Mr Madoff. Santander’s total direct and indirect exposure remains unclear, while BBVA disclosed on Monday that it may have lost up to €300m.
In October, Santander had already decided to compensate private banking clients who lost millions of euros from products linked to Lehman Brothers, the failed US investment bank.
The second question for Spanish banks and cajas, the unlisted savings banks, is whether they can weather the storm arising from their own, very traditional banking crisis – one caused by a continuing domestic property market collapse of spectacular proportions.
A lot of regulation and a little luck initially spared Spanish banks the worst of the international crisis that originated in the US subprime mortgage market. They were lucky – to begin with, anyway – to be so focused on the money to be made in the fast-growing Spanish economy of the time that most of them had little interest in exotic financial instruments abroad.
Exposure to property problems may force cajas to set aside their regional pride
But Spain’s bankers agree that they were kept virtuous largely by the stern regulators at the Bank of Spain. The central bank achieved this in two ways. It made it so expensive for financial institutions to establish off-balance sheet vehicles – of the sort that subsequently sunk banks elsewhere – that few Spanish banks bothered. It also demanded in the good years that banks set aside “generic” bad loan provisions in addition to provisions for specific risks, a sensibly counter-cyclical regime that has been much remarked on abroad since the crisis began. Santander, for example, has built up more than €6bn of generic loan loss provisions.
“What they have on other countries is that the accounting and regulatory framework has been awesome,” says one senior foreign banker in Madrid.
On the face of it, Spanish bankers should therefore be brimming with confidence. Indeed, Mr Botín said as the crisis deepened that Santander was “really in a magnificent position compared to our competitors”, while José Antonio Alvarez, his chief financial officer, said in October that Santander could benefit from a “winner takes all” market “by rescuing falling banks at attractive prices”.
Five days after Mr Alvarez spoke, Santander – already the owner of Abbey, Alliance & Leicester and the branches and deposits of Bradford & Bingley in the UK, as well as of Brazil’s Banco Real – was announcing a $1.9bn deal to bail out Sovereign Bancorp in the US and buy the shares that it did not already own.
At BBVA, executives have also portrayed the crisis as an opportunity rather than a threat. Juan Asúa, the bank’s director for Spain and Portugal, boasted this month of BBVA’s prudent and rigorous risk management and said the bank saw crises as “excellent opportunities for growth and consolidation” for those with the right strategies.
For most Spanish banks, however, there is scant hope of profiting from the current financial turmoil. Even the larger, internationally diversified banks face daunting problems in the coming months, particularly if Brazil, Mexico and the UK turn out to be as vulnerable to global recession as the US and continental Europe – and if the Madoff scandal wreaks further damage on profits and reputations.
The biggest threat in the medium term is the heavy exposure of most banks and cajas to the Spanish property crash, both via their loans to overstretched developers and construction companies such as Metrovacesa and Colonial and via mortgages for home buyers.
Loan defaults are rising fast – in tandem with unemployment, which is already at 3m, or 12 per cent of the workforce – and it will not take long for the bad debt load to overwhelm even the prudent provisioning mandated by the Bank of Spain.
Willem Buiter, professor at the London School of Economics, predicted an “ugly” year ahead for the Spanish economy when he gave a talk in Madrid this month. “You’re going to have massive negative GDP growth,” he said. “The building sector has so overexpanded it’s ludicrous.”
Another weakness of the Spanish banking system in the current climate is its heavy dependence on international wholesale financing. The crisis has brought an abrupt halt to the funding of the Spanish current account deficit by German savers, who indirectly bought the covered bonds and other mortgage-backed securities sold by Spanish banks.
That is why the Spanish state – although it has not so far needed to rescue insolvent banks – has been generous with liquidity support: the government of José Luis Rodríguez Zapatero, the Socialist prime minister, has offered the banks a total of up to €250bn in loan guarantees and asset purchases until the end of 2009 in order to maintain the flow of credit to borrowers. Two weeks ago, the finance ministry said that 90 per cent of eligible banks had applied for the government debt guarantees.
Last, the emergency nationalisations of US, UK and other European institutions – accompanied by capital injections – have had the perverse effect of making healthy Spanish banks appear short of capital when lists are drawn up and capital ratios compared by analysts. “What’s happening in Europe is that the shittiest banks got saved first,” says the foreign banker.
It was for this reason that Santander, despite having said it had no urgent need of new capital, launched its surprise rights issue. Others are under pressure to do the same, albeit for lesser amounts – BBVA has just announced an issue of preference shares to raise up to €1bn. But attracting cash will not be easy: although Santander’s rights issue was at a deep discount, there were tense moments at the bank and its underwriters when the shares slid close to the offer price the week before it closed.
Spanish bankers have been voicing loud objections about the injustices arising from foreign bank bail-outs. They have pointed out that their accumulated generic provisions are equivalent to core capital, even though not technically counted as such. “We have seen unfair competition as a result of assistance to foreign banks that has absolutely distorted markets,” Roberto Higuera, chief executive of Banco Popular, said last month.
They have even discussed the possibility of seeking redress on competition grounds from the European Union, although at present, as one senior Spanish banking representative puts it, “the priority is to save the system, not to complain”.
Bankers are meanwhile drawing in their horns on acquisitions – even Santander says it has no further purchases in mind right now – and are appalled by what they see as a further retreat of continental European banking into fragmented national fiefdoms as a result of the crisis.
In spite of their sharply lower share prices and the need to go cap in hand to the government for liquidity support, Spain’s bank bosses have so far been spared the need to offer the humiliating apologies made by some of their US and European peers. By next year, if the property market slides further and the fallout from the Madoff affair proves harsh, even Spanish bankers might have to say sorry.

Savings institutions: Exposure to property problems may force cajas to set aside their regional pride
Even in today’s strange new world of state-capitalised private sector banks, the Spanish caja de ahorros, or savings bank, is an unusual creature, writes Mark Mulligan. Owned by no one but controlled by society, they are more akin to charitable foundations than co-operatives or mutual societies.
However you define them, though, the 45 regional cajas are facing one of the most difficult periods in their 173-year history, as bad loans eat into profits and core capital.
The legal framework for the modern-day caja was created in 1835, when liberal ideals and industrialisation were taking root in Spain. Aimed at encouraging thrift and enterprise among the working classes, they grew from the foundations of the Catholic church’s “Montes de Piedad”, early microlending institutions that extended small sums to the poor.
There is still a charitable element, as the cajas are foundations that must, by law, dedicate some of their profits to social works. However, in the past 30 years they have come to resemble more closely their listed competitors, financing the excesses of Spain’s property-fuelled boom. With roughly half the assets and savings of the financial system, they are now as important to the country’s well-being as commercial banks. Sector leaders such as La Caixa, with its portfolio of equity in some of Spain’s biggest listed companies, are also important corporate power brokers.
However, the cajas do not have the international diversity that has allowed large listed institutions such as BBVA and Santander to be picky about whom they lend to in Spain. Instead, the intensely regional cajas have scooped up “all the rubbish” as they seized market share at the top of the property cycle, in the words of a senior investment banker in Madrid.
As Spanish property developers collapse, the savings banks’ exposure to the sector – and to overstretched home buyers – is taking its toll. Less than 1 per cent a year ago but more than 3 per cent now, their collective non-performing loan rate is higher than that of the listed banks and climbing with alarming speed.
Credit rating agencies have made a series of downward revisions and bankers fear that the smallest and most overexposed lenders could eventually fail. “If a bank goes over 10 per cent on NPLs, it’s difficult to come back, and I think a lot of them are going to go over,” says the investment banker.
Although banking officials and politicians are loath to subscribe publicly to such a nightmare scenario, there is consensus that reform and consolidation in the savings bank system are unavoidable. This could take several forms, with the most drastic involving the aggregation of some of the worst affected into larger entities, which would then be recapitalised and sent back to work.
Another would be a series of takeovers, with strong cajas such as La Caixa, the Catalan powerhouse, or the capital’s Caja Madrid mopping up weaklings in “sunbelt” regions along the Mediterranean coast. But political will for such change might be lacking.
With regional politicians and local councillors distributed through the three tiers of corporate governance, the institutions have become, to varying degrees, platforms for pork barrel politics, regional power games and partisan bickering. The attempt to merge three cajas in the Basque country, for example, has become a long-running soap opera as political differences threaten the deal.
Tie-ups across borders in Spain’s proudly autonomous regions have also proved all but impossible in the past, mainly because of legal complexities. As it is, a caja simply wanting to advertise in all of Spain’s 17 regions needs 18 permits – one from each regional government and one from the centre.
Those who are eager to reform the cajas say it is up to legislators to facilitate a shake-out. They argue that reducing the limit on political representation on the banks’ boards, supervisory commissions and general assemblies from 50 per cent now to 25 per cent would be a good start.

From Sky News. If you have a Spanish mortgage in Euros then now is a very good time to lower your exposure by switching to an interest-only mortgage in Spain, and engage the services of a foreign currency broker.

The pound has fallen to a record low against the euro. The two currencies could soon reach parity for the first time. That's good news for some but bad news for others.
The pound has reached a new record low against Euro
Rescue packages, Bank intervention, global action - we are told the mechanisms are all in place to make this economic crisis as short and shallow as possible.
Even Mr Brown, in his monumental Commons gaffe last week, let it slip that he and his team have "saved the world" when it comes to the crumbling financial system.
But when you look at one particular set of numbers - you may not feel very "saved".
Holidaymakers are feeling the pinch
Sterling's performance against the euro has never been so bad.
Soon, one pound is expected to buy you just one euro because Sterling has lost 20% of it's value in the last year.
As much as politicians and the market try and talk it back up, it's taking a battering from consistently negative economic figures.
There is also a loss of confidence triggered by the Bank of England repeatedly slashing interest rates.
It's not all doom and gloom of course.
Businesses that export their goods to Europe will be happy with this situation - small recompense, perhaps, for a generally shrinking marketplace.
Simon Ecclestone owns a Wolverhampton based company that makes specialised components for Automation equipment.
They are intent on developing their business in Europe and hope to finalise a contract on the continent worth around £5m next year.
We think this is as bad as it gets.
Nick Parsons, Head of Market Strategy at nabCapital.
"Parity of the euro and Sterling doesn't affect our thinking in terms of strategy but it is an added bonus...The question really is, will parity with the euro mean Gordon Brown will want to link in with it?," he said.
But for most UK residents the weakening pound makes short-haul travel an expensive option.
It could push more people to stay within the British Isles for their holiday or save up longer before taking a long-haul trip where they might get more for their money.
The Sterling/euro price that traders see on their screens may not yet have reached parity.
But when exchanging money at foreign exchange kiosks, some travellers have already been getting less than one euro for every pound they hand over.
Retail margins and commission have already tipped the balance for them.
Expats in countries who get paid in Sterling but spend their earnings in euros are also obvious casualties.
Independent Financial Advisor, Barry Davys of Expat Financial Advice, Spain, says parity is a prospect that is causing some Brits living abroad to alter their lifestyles.
"Many expats like to keep one eye on the currency markets because they are open to returning to the UK if they have medical problems or to see family," he said.
"The problem is, if they own a property in Spain and want to sell it, parity will make that very difficult.
"The cost of buying property in Spain is proportionally much, much more expensive."
But some believe this is a premature concern and the two currencies are not going to parity.
"We think this is as bad as it gets" says Nick Parsons, Head of Market Strategy at nabCapital.
"We would advise that the pound is a buy against the euro and the dollar. We have been bearish about the pound all year but we have changed our view.
"The bad news on the economy and rates has been reflected in the price. The time to be bearish about the pound was a year ago."
So, it is not yet a done deal and surely we shouldn't be surprised about that.
Perhaps the only thing the last few months has taught us is that when it comes to stock, commodity or currency markets, nothing is certain.


A fantastic, long, but interesting article from seekingalpha.com



So Just When Does Spain's Twin Deficit Problem Become Unsustainable?
This, it seems, is the question of the day. According to the IMF Spain’s economy faces a contraction of at least one percent next year. And the IMF stress that the risks to this forecast “remain on the downside” since the country’s real-estate market is “in full correction,”. Also, horror of horrors (and we will return to this). The government’s budget deficit will exceed five percent of gross domestic product next year, the Fund forecast.
While the IMF seem to be more aware of the scale of the problem than the Spanish government currently are, they do seem to be putting all of the emphasis for recovery on some much needed labour market reforms, but personally I don't think even these are playing in the right ball park, we need a big picture "breakout" escape plan, to cut loose from the pincers of cash drought, corporate bankruptcy, construction dependency, large scale contraction and price deflation. It's a big mess, and will need an equally bold and ambitious plan to get to grips with it.
One point which is obvious at this stage is that Spanish government forecasting - which has currently built a 1% expansion into the 2009 budget - is getting ever more out of line with the economic dynamic. Really this is the first thing which has to change. Spain urgently needs someone leading the country who is able to turn the page, put some realistic numbers on the table, and try to work to meet objectives, instead of simply failing to achieve them time after time. What do I mean by this, well, if you seriously think that the contraction next year will be of 2% of GDP then it is better to say 3%, and beat your target, than say its going to be 1% growth and come in with a 2% contraction. Not only will your citizens be getting more and more fed up with all of this (and the impact on morale should not be treated lightly) but much more to the point, since Spain is heavily dependent on foreign finance to buy the debt that the government is going to need to issue (see more below) to finance the fiscal deficit, then each and every failure to achieve target is likely to be punished with a higher cost of financing debt (as the yield spread on the risk rises). So as well as the credibility cost, this kind of playing fast and loose with the forecast is now likely to carry a real financial cost.
Of course, in true wooden-bureaucrat style (where are we here, back in the old USSR?) a spokeswoman who declined to be named in line with ministry policy informed Bloomberg that while the Finance Ministry shares the IMF’s analysis of the economic situation, it doesn’t back the specific IMF forecasts on growth and the budget deficit. Obviously the spokeswoman not only decline to be named, she also declined to enter the Byzantine discussion of how it is possible to share the analysis without sharing the conclusions. On the other hand the man who is hotly rumoured to be pencilled in as Pedro Solbes successor in the next facelift - Economy Secretary David Vegara - was rather more elegant when questioned about the estimate by reporters "To me it's reasonable, I always think the IMF and OECD do their work with first class technical groups,". Exactly, although of course, in the forecasting game even the best of technical teams can get it wrong, which is what the IMF allow for when they talk about "downside risk".
Vergara was also of interest yesterday insofar as he specifically denied that Spain faced a deflation problem, although he did admit that inflation was likely to reach a very low level. I think, yet one more time, this is "ostrichism" (avestruzeria), since the drop in prices is now so evident, and the contraction in Spain is going to be so sharp, that Spain has to be the one developed economy where price deflation is now a near certainty, and you can quote me on that. As I go to my local bar for the morning coffee, I always take a look to see whether the 1.15 euros they currently charge for a cafe con leche has been brought down to 1.10 euros. Not yet of course, but when will that happen? In March? In June? I bet it happens before August next year (and I will report). And when it goes down to 1.10 euros, the next move will be 1.05 euros, and so on..... depending on just how long the deflation continues.

So Just How Much Will The Spanish Economy Contract In 2009?

Well, I think this is a very hard question to answer. I think a 1% contraction is a done deal, and my own previous best guess was in the 3% to 5% contraction range, which is, of course, very strong indeed. And there I was happy to leave it, until that is Deutsche Bank came out with their latest 2009 forecast for the German economy, where chief economist Norbert Walter has said that Germany's gross domestic product could contract by as much as 4 percent next year. This has to be "bottom of the range" estimate, but then, it might happen, I mean these are not just numbers spun out of thin air, they are backed by analysis, German manufacturing is contracting very rapidly at the moment (but not as rapidly as Spanish manufacturing). The German government itself is forecasting a 1% contraction, and the IFO institute came out today with 2% contraction for 2009 estimate (the median forecast?). At this point I won't go so far as to modify my original forecast for Spain, but what I will say is that if German GDP contracts by 4% in 2009, then Spain's will contract in the 5% to 7% range, since on every important reading Spain is contracting more rapidly than Germany at this point, and there really is no bottom in sight, just what appears to be a "black hole", sucking us down.

But what About The Sovereign Debt? What Is Going On With All That Government Spending?

This I think is the big point.

At the risk of boring to tears all my regular readers I would first like to stress that what we have in Spain is not a simple garden-variety housing correction. Spain is a country which was allowed across the 2000-2007 period to develop massive macroeconomic imbalances, which to some extent were reflected in a huge housing boom. But the imbalances (current account deficit of 10% of GDP, massive migrant flows - 5 million people in 8 years, rapidly rising household and corporate debt - rising at 20% pa, and reaching around 90% and 120% of GDP in 2008 respectively) and not the housing are the key to the problem. Thus Spain's economy is not reeling under the weight of the unwinding of the property boom, but rather Spain's property boom is reeling under the impact of the unwinding of the macro imbalances, and this unwinding became more or less inevitable once the US sub prime crisis broke out in August 2007. I think it is no accident that the two countries who noticed most the shell shock from the sub prime turmoil were Spain and Kazakhstan, since these two countries were the most dependent on selling some type of paper or other in the wholsale money markets to finance their imbalances, and the doors to these markets effectively closed in September 2007.
So what we need to think about is the impact Spain's financial system problem is having (due to difficulties in financing the current account deficit) on the housing bubble and the construction industry, since this I think is the way the causal arrow works in this case, and not the other way round. And it has been the failure to appreciate this causal chain, in my opinion, that has lead so many people to have had so much difficulty understanding the extent of the problem we have here in Spain.
Basically the housing boom had masked the enormous problem Spain had acculumlated in terms of its current account deficit, for the simple reason the funds which were happily flowing in to fuel the boom meant the books balanced easily enough each and every month. But once people became just a little bit nervous about what was happening to that boom, and how sustainable it was, the flow of funds suddenly dried up, just like that, in September 2007, and the size of the hole in the flagship side suddenly became apparent. Since that time the bilge pumps have been busily trying to drain all the water which has been flowing in, but alas without notable success.
When I say the bilge pumps have been working, I am talking about attempts by the ECB and others to provide liquidity to the Spanish banking system, but if we look at what has been happening to lending in Spain in recent months, we will see that this particular cocktail still isn't managing to reach the parts "the other beers cannot reach". Below we have a chart (based on Bank of Spain data) which shows net additional lending to households on a monthly basis.
What is clear from a quick glance is that lending since June has been virtually stationary, which means basically new funding is being provided for mortgages only at the same rate as old ones are paid up. This effectively means that if something can't be paid for in cash or with a credit card, then it really isn't being sold, and every time less so. To get things in perspective, new lending to households was running at the rate of about 10 billion euros a month up to the summer of 2007. It also means that a business sector which had become accustomed to having new business at the rate of 10 billion euros a month has no found itself with virtually nothing (as I say, simply the business you can do on the basis of recycling the old credits which are being paid off).
But there is new money every month, the CA deficit (which is reducing) is being squared, so where is the new money going. Well that's easy isn't it, it's going to the government to finance the growing deficit, and to Spain's corporates, who need to keep refinancing all that debt, debt which is only mounting, of course, because no one has money to buy the products they want to buy... and why, you may ask, don't they have money? Because the money needs to go to keep the companies afloat, or to fund government rescue plans, to help the firms (possibly via the banks) who can't sell becuse the customers don't have money to buy. Oh, I see.
Of course the solution to this macarbre vicious circle is not to lend the money to the customers who are in any event far too deep in debt, but to reduce the current account deficit which lies at the heart of the problem, possibly by encouraging some people abroad to borrow a bit more money, and then selling them something they need, at a price they may be interested in. It's called "export".
In fact Spanish corporates received a net 19 billion in additional lending over the three month July-September (while households received a net 800 million) but as we can see, all this extra debt isn't moving us forwards very fast, and indeed we are actually going backwards.
As I say, Spain's big problem is the current account deficit, which reached 10% of GDP last year. At the present time this deficit is dropping slightly as imports collapse, but it is not falling as fast as it should be, and meantime, as I am saying, the Spanish government is raising its borrowing needs. Spain has movied in 2008 from having a 2% of GDP surplus in January to a 3% deficit in December (ie a shift of 5% of GDP), in 2009 we will move up to at least 5% (as the IMF suggest, and we could even move higher depending on what happens to GDP).
The fiscal response has been swift and large. The government has taken 4 percent of GDP in structural measures for 2008-09 to assist the economy-bigger than many EU partners and ahead in timing. Together with automatic stabilizers, this results in deficits of 3 percent of GDP in 2008 and over 5 percent in 2009-a swing of more than 7 percent of GDP in the headline balance (compared with an end-November 2008 estimate of 1¾ percent for the euro area as a whole). While the mission notes the focus in the 2009 package on spending for labor-intensive local public works, the authorities need to ensure that this is channeled to its most productive use. The mission sees this fiscal effort (with built-in unwinding as the exit strategy) as temporarily boosting demand.
- IMF Article IV Consultation: December 2008
So in 2010 we could find ourselves with a CA deficit of around 8% of GDP and a government fiscal deficit rising up into the 5% to 7% region. If this does prove to be the case, then I think the financial markets are absolutely going to see red (there are already problems with the eurozone sovereign 10 year bond spreads, see the charts below - click on the image to see it better) and Spain could find itself just where Hungary was in 2006.
As ECB Council Member Jürgen Stark said in an article in yesterday's Wall Street Journal, the environment for conducting economic policies, and in particular monetary and fiscal policies, has now become extremely "challenging". One part of this challenge is going to be the funding of all the extra borrowing that euro-area governments will need to do to make good on all their promised support for the banking system, most notably the funds for recapitalization and guarantees for interbank loans. Stark estimate that to date, the envelope of funds for possible recapitalizations and guarantees amounts to some €2 trillion, or roughly 20% of euro-area GDP. This is a very large number.
As Stark also notes many euro-area governments failed to use the past boom times to consolidate their public finances (although this was not especially the Spanish case). As a consequence, many euro zone governments are now entering the current downturn with high deficit and debt ratios. Given the weak growth ahead and the costs of the bank bailouts, these ratios are inevitably set to rise. Stark estimates that in a year's time the deficits in many euro-area countries will be between 5% and 7%, up from around 3% now, while public debt may rise by 10 to 20 percentage points. Again these numbers are very large, and financing them is going to be, as Stark would say "challenging".

As can be seen from the chart above, interest-rate spreads for government bonds are already high (and rising) in a number euro-area countries, and I would draw special attention here to the cases of Greece and Italy, since they have been constantly warned about the danger of this kind of development. And governments are having growing difficulty selling paper, as both the Netherlands and Austria found out this week. The Dutch government failed to raise as much as it had targeted for three bonds - maturing over five, six and seven years, respectively - while the Austrian government saw one of the weakest auctions in years for 12-year paper. These difficulties highlight the potential problems that may be faced with the vast pipeline of government and government-backed debt following the announcements of big fiscal packages to stimulate economies and bail out banks.
And analysts are warning that while the problem isn't a big one right now, these early signs of stress, following so closely on the back of the announcement of big fiscal stimulus programmes, are a clear warning of potential problems next year when record volumes of debt are due to be issued. More than $1,000bn of government debt is expected to be raised in Europe in 2009, while close to $2,000bn is forecast in the US.
The Austrian government found itself forced to pay 13 basis points more than comparable 12-year bonds for its €1.1bn issue, while the Dutch government only managed to raise a total of €2.46bn for the three bonds being sold after indicating that it wanted between €2.5bn and €3.5bn. Since the Netherlands is normally considered one of the strongest and safest of credits,then frankly this does not augur well.

The thing is, Spain's downturn is now pushing the country's former fiscal rectitude into the distant past of historical memory. Worse, the debt is being levered up, not to buy a piece of the future for a country in the process of a thoroughgoing renewal, but rather to keep one group of already moribund and walking dead corporates alive, just as long as it remains possible to keep selling Spanish Sovereign debt at prices which don't swallow up most government revenue simply paying off the debt. But as those spreads move skywards that point will be reached, most probably in 2011. By which time Spain will be perfectly poised for one of those classic twin deficit national-bankruptcy scenarious financial crisis theorists like to write so much about.
Short-run fiscal policies need to be embedded in a long-run context to explain how the debt can be lowered once the economy stabilizes. Public debt, while still manageable, is poised to jump. To boost confidence in light of high aging costs, the authorities should present a plan how to lower the debt again once activity stabilizes, including with pension reform. The mission encourages the authorities to develop an intertemporal public sector balance sheet for publication in the annual budget. It would show the debt already incurred, and also the present value of the projected stream of future deficits (a forward-looking debt) under unchanged policies. This provides perspective on long-run fiscal sustainability.
- IMF Article IV Consultation: December 2008
Keynes once recommended paying people to dig holes in the ground and fill them in again rather than leaving them languishing on the dole. The Spanish government seem to have gone one stage further, they are only paying us to dig the hole, there is no plan to fill it in again, unless that is they have a prepaid contract with Komatsu or Caterpillar to come over (in the eventuality this is needed, which it will be) with some earth moving equipment, and shove the soil back in to bury the lot of us.


News from the Financial Times in London.

Lenders in Spain started to change the way they were lending, particularly to non-residents, quite some time before the credit crunch was dominating the news. The Euribor inter-bank rate is falling, but not fast enough compared to the ECB base rate. And banks in Spain are particularly reluctant to pass on the savings. The IRPH and Cajas rates, which take an average of lending rates in Spain, are still above 6%. Many lenders using the Euribor as their basis, have also increased the margin above the Euribor that they are charging.


Jean-Claude Trichet, president of the European Central Bank, has stepped up pressure on eurozone banks to resume more normal lending by stressing that ECB measures to prop up malfunctioning markets must be seen as "very exceptional".

The ECB looked forward "to the reactivation of inter-banking lending and to banks resuming their traditional intermediation activity", Mr Trichet told the European parliament in Brussels yesterday.

The ECB sees the restoration of more normal banking practices as essential to eurozone economic recovery plans. Since the collapse of Lehman Brothers in mid-September, the ECB has taken over the much of the role played by markets and is offering unlimited liquidity overnight and for longer periods at fixed interest rates against a deeper pool of collateral.

The ECB has seen gradual falls in the three-month Euribor interest rate, the main gauge of bank to bank lending rates, which yesterday hit a new two-year low.

But Mr Trichet's comments will encourage speculation that the ECB will slash he rate of interest paid on the massive sums deposited with it overnight by banks - rather than lent to others - which are regularly exceeding €200bn ($258bn, £174bn).

Mr Trichet said the steps taken by the ECB had eased liquidity tensions, "yet I should like to stress that these measures are very exceptional". To boost financial market confidence, the ECB has urged eurozone governments to speed up the implementation of bank guarantee and recapitalisation plans.

Germany's Bundesbank yesterday confirmed it was looking at whether an independent clearing house could be set up to help restore the interbank market but it was unclear whether German could act alone. Similar ideas have been mooted in Italy.

But Mr Trichet signalled his opposition to the idea of creating the first joint European debt instrument to overcome the difficulties faced by some governments in raising money in the capital markets. "We consider it is good that each particular state, each particular Treasury has its own refinancing and has its own way of being on the market," he said.

Mr Trichet told European parliamentarians that global economic weakness and sluggish domestic demand in the eurozone would persist "in the next few quarter" before a gradual recovery.

"The measures announced by governments to address the financial turmoil should be implemented swiftly so as to support trust in the financial system and prevent constraints on credit supply."

10th December

A snippet of daily news updates relating to the Spanish property and mortgage markets.

The Tinsa index in Spain is reporting that housing in Spain was 7.8% cheaper in November, year on year, leading to flat prices last seen two years ago. The real estate promoters, are forecasting less than 160,000 new homes will have been built here this year. House prices have been falling according to the index for the past nine months.

The European Central Bank has admitted that the Euribor rate, the one used to set most mortgages, remains too high, and they will work to get it lower. The daily rate of the Euribor has now fallen to 3.7%.
Governor of the European Central Bank, Jean-Claude Trichet, has also admitted that inter-bank rates remain high, but that they are doing what they can to get things ‘back to normal’.
Trichet has however hinted to the BBC today that there will not be a further cut in European interest rates in January.


9th December

As Spain heads into recession, news from the Spanish papers that is very similar to the stories coming out of the UK. Banks everywhere seem to be reluctant to lend at the moment, although many of the lenders that we use are following the falling Euribor and passing on all rate cuts in full


Banks and Savings Banks in Spain have admitted that they have stopped lending to companies and families. A Survey published on Friday by the Bank of Spain shows that the banks admit restricting the granting of credit between July and September, and that the fall will continue in the last quarter of the year.
It is also of note that families are asking for less credit, especially when it comes to mortgages.

Shops in Spain are coming up with more imaginative ideas to try and rescue Christmas sales, with discounts, interest free credits and gift cards are being seen by shops both large and small.
One area of Spanish tradition which has been hard hit by the slow down is the sale of top of the range Pata Negra ham. Sales are down by as much as 20% in the current Christmas campaign. Normally 60% of ham sales take place in the run up to Christmas.

The European stock markets have rallied today in response to the more detailed plans announced over the weekend by Barack Obama on the television programme, Meet The Press.
By midday the IBEX 35 had rallied in Spain by more than 5%, as the promise of more investment in infrastructure in the United States is expected to create two million work places. The rally in Spain, which weakened later, was led by Endesa, Ferrovial and Abengoa.

The Nissan car company and the unions in Spain have reached an agreement under which the 3,500 redundancies at the factories in Barcelona will only be temporary. Under the deal the workers affected will be without work for a maximum of 75 days, with 90% pay.
A new negotiating panel is to be set up which will plan the future of the companies under the deal.

The Ministry for Industry, Commerce and Trade has awarded the tender for the use of the 11818 directory enquiries number to Telefónica for three more years.
They are allowed to continue to run the service, but they have to reduce tariffs by 33%. The Ministry say they will carry out consumer surveys on the services next year ahead of possible changes.

El País notes today that the Martinsa real estate company overvalued the worth of its land by upto 19,000%. The paper claims that the company ended 2007 with profits because of these accounting irregularities, and gives as an example some land in Las Palmas worth a million € in their accounts, but valued at 179 million. A plot in A Coruña sold for 1.5 million appeared in the accounts with a value of 84 million.

An increase in electricity prices of 3.5% in January is being prepared by the Ministry of Industry. It comes as talks are underway on the matter in the power industry which has requested larger increases in price.



1st December

Euribor rates continue to fall, Spanish mortgage rates to follow

Since the ECB base rate cuts in November, the Euribor rates have steadily fallen, and now stand at a two year low. As at 1st Dec the 12 month Euribor was 3.9%. Most Spanish mortgages use this rate as their reference, with the banks adding a margin on top. Current expected mortgage rates for new clients and remortgage clients would be in the region a=of 4.65% to 5.15%.