More ’bricks assets’ in Spanish banks
Spanish banks’ balances sheets are filling more and more with the ‘brick assets’ a situation which they had hoped to avoid. The principal entities alone had property assets to the value of 36,428 million euros at the end of 2011, in the form of apartments, offices, houses, buildings and land (which the imbecile bankers had financed for greedy promoters who were not able to pay their ‘adventures’). This was an increase of 36% in just one year.
The same banks have already set aside 12,632 million, which amounts to 34% of the risk. The government, however, is now demanding a coverage of more than 50% for buildings and an 80% minimum for land.
Another labour reform
The Government has come up with a new labour reform, the second in less than 2 years, which will make it easier to dismiss employees. Workers will now only have the right to 20 days compensation for each year worked if they are dismissed. Among the reasons employers have for laying off workers is that the business has made losses, in income or sales, over the past 3 quarters.
50% of notaries loosing money
Joaquin Rodriguez, Director General of Notaries and Property Registries, has asked the Government to merge or close many of the notary and registry offices, half of which are loosing money following the end of the property boom. 50% of the 3,000 notaries and 1,100 registries are having ‘difficulties getting to the end of the month’.
The leader of the College of Registrars, Alfonso Candau, has urged Prime Minister Rajoy (himself a property registrar) to change the Law on Land Use (Ley del Suelo) and the Mortgage Law (Ley Hipotecaria) to give proper guarantees to foreign investors to encourage the sale of dwellings. He also criticised the decision of the Supreme Court, which has left courts with the ability to make demolish orders against buyers of dwellings, which a court consider illegal.
86% of IBEX companies operate in fiscal paradises
During 2010 companies on the IBEX stock index increased their operations in fiscal paradises by 4%. 86% of listed companies are carrying out transactions in such paradises, and are not supplying detailed information or what taxes they pay there.
Modest bank director cuts his salary…..
Francisco Gonzalez, BBVA President, has surprisingly reduced his salary. He received only 4.9 million euros in 2011, down 6.4% on 2010. Banco de Valencia lost 876 million euros in 2011; nevertheless, its 9 Directors awarded themselves 2,495 millions incentives, up 7.5% on last year. The Bank of Spain has opened disciplinary proceedings against the directors of the bust CAM bank for irregularities
…..whilst 20.7% of population are at risk of poverty
Eurostat reports that Spain, together with Lituania, Romania and Bulgaria, has the highest risk of poverty due to the economic crisis. The percentage of the population at risk of poverty increased 3.7% over the past two years, to the present 20.7%. The country with the lowest poverty risk is the Czeck Republic at 9%; Holland, 10; and Slovakia, Austria and Hungary, all at 12%. Poverty is calculated as having an income 60% under the average income of the country.
(Eurostat is the statistical office of the European Union, based in Luxembourg (LU). It publishes official, harmonised statistics on the European Union and the euro area, offering a comparable, reliable and objective portrayal of Europe's society and economy).
Protests against Judge Garcon punishment
Judge Baltasar Garzón has been banned from working as a judge for 11 years. The verdict has been met with protests and demonstrations throughout Spain. Many see the sentence as the lynching of a brave judge (see last week’s report).
No video of Urdangarin
The investigating judge in the case of Ińaki Urdangarin, husband of Princess Cristina, who is accused of misappropriating substantial sums of money from his sports foundation and transferring them to his private accounts, has announced that a video recording of the defendant’s appearance in court, will not be permitted. A representative of the General Council of Judiciary Power, Gabriela Bravo, has defended the decision by saying that, ‘all accused are not equal….’
Cleops in bankruptcy proceedings
One of Valencia Region’s surviving construction companies, Cleops, has applied for protection under the Bankruptcy Law. The reason given is that there have been delays in payments due from public administration and fewer new public works. The company now has 3 to 4 months to refinance its debts of 135 million euros.
The company employ 878.
Ministry of Development, 40,000 million hole
Ana Pastor, on taking over as the new Minister of Development from the previous Minister Pepe Blanco, has found undeclared debts of 40,000 million euros. This corresponds to 3% of the Gross Domestic Product of the country. The debts of the Ministry have increased 50% over the past 5 years.
New companies 6% increase
The number of new companies formed increased by 6% in 2011, this followed an increase of 2.2% in 2010. In 2007 the total number of companies shrank by 3.9%. In 2008 the number fell by a staggering 27.8%, followed by a further 24.5% in 2009.
In 2011, 19,743 companies were dissolved; 6.7% more than in 2010.
Of the brave new business starters last year, one in four came from the unemployment lines.
Spanish home sales declines
National Statistics Institute in Madrid have reported that in December, Spanish home sales declined for the 10th consecutive month, with the number of transactions falling 25.3% from 2010.
Less than two months since taking over from Spain’s Socialists, Rajoy’s People’s Party Government, in a bid to push down property prices and restore the flow of credit, has given the nation’s banks a year to increase provisions against their175 billion euros of troubled real-estate assets.
The latest available Bank of Spain data shows that Spanish banks’ bad loans are increasing whilst deposits are decreasing, and that lending has dropped at the fastest pace on record.
Owners of ‘illegal’ homes unite
Associations representing 40,000 owners of homes declared illegal, affected by the law on legalisation passed by the Andalusia regional administration have held a conference in Cordoba, and they decided to establish a federation to battle the law called LOUA.
The crisis this week:
By making more promises of savings, in the final few hours of last week, the Greek Government may have avoided the financial collapse of their country, a collapse that could have meant the implosion of the Euro system
However, the Euro group has delayed the decision to guarantee a new resque package for Greece
100.000 citizens demonstrated outside parliament in Athens, followed by street battles with the police and setting fire to a number of buildings, underlining the lack of popular support for the non-elected government
79% of Greeks are against the new savings measures. The political parties are sitting on a rumbling volcano with national elections due in April
Nevertheless, the Spanish Government managed to place 5,500 million euro worth of bonds over 12 and 18 months, at an interest rate lower than at the last offer
The country risk has risen to 340 points
Reuters reports that the EU Commission considers that the new Government in Spain has inflated the deficit in 2011, so as to have a better margin for improvements in 2012. If this is confirmed Spain may risk fines
The Human Capital
By Per Svensson
There are many ways of measuring a crisis; referring to the stock index, the debt of a country compared with its gross domestic product, the country risk, or the interest a country must pay to finance its debts. However, one measure is more important than all the others, that is unemployment, expressed as the number of unemployed or as a percentage of the working population.
According to government statistic, there are 5,273,600 people without a job in Spain, that is 22.85% of the work force. We have to stress the words ‘according to’ because official Spanish statistics are chronically unreliable, for instance: young people who have never had a job are not included, nor those who have given up trying to finding a job (who have maybe gone to another country in search of employment). Even so, let us use the official numbers as a reference, they are enlightening enough.
- It means in 578,400 homes there is no one with a job, not even anyone with an unemployment cheque, to contribute anything to the family economy. Of the 5.3 million unemployed, 2.6 million have been in that humiliating situation for over a year; at the beginning of 2009 there were less than 1 million in that position. Hopes for the future? All international organisations, the Spanish Government and banks expect a significant increase in Spanish unemployment, up to maybe 6 million before the end of the year.
The lost generation
- In the 16 and 19 years old group unemployment reaches 69.3%, and for those between 20 and 24 the percentage is 44.4.
- Four years ago there were 111,100 people over 50 who had been unemployed for more than 1 year. Today there are 536,800!
Lower level of education
In this situation it is no wonder that that the young generation cares less about getting a good education. 36% of those between 25 and 29 years have only basic, obligatory education. The average percentage in the EU is 18.6%. It means that the younger generation in Spain has already lost the competition. This is also confirmed in the PISA studies, produced by OECD, on the quality of education. Spanish pupils come 34th in Europe in their reading skills and 36th in mathematics. Young Spaniards with knowledge of foreign languages is miserable, so how will they be able to compete for good jobs when eventually the economy rallies again? Will they be doomed to be waiters in tourist establishments or cheap bricklayers in a new construction boom, which the promoters are silently preparing for?
It is a sad fact that an incompetent social democratic government has destroyed the future of an entire Spanish generation.
BRITISH EXPATS IN SPAIN FACE THE BULLDOZERS ONCE AGAIN
AUAN, 9th February 2012
British expatriates in Albox, a small provincial town in Andalucía, Spain, faced an anxious New Year in 2010 after police served notice that their homes were to be bulldozed after their construction was declared illegal.
Having overturned the demolition orders on the basis that they had not been informed of the proceedings, the couples vowed to fight on. Since then they have engaged in a protracted and expensive court battle to try and defend their homes.
Yesterday, one couple received the devastating news that the courts have again decided that they must face the bulldozers. Their home, in which they have invested their life savings, was constructed with planning permission from the local council in 2002 and possesses all of its necessary paperwork.
Lawyers acting for the regional government (the Junta de Andalucía) successfully argued that the property risked provoking an urban nucleus. The revocation of the building licence was upheld and the retired couple were ordered to pay costs. They are now faced with the prospect of an expensive appeal.
A spokesperson for AUAN, a pressure group made up of mostly British homeowners, responded to this latest ruling saying “Welcome to the surreal world of planning in Andalucía. The regional government claims that its much publicised Decree will grant recognition to illegal buildings in Andalucía but this couple, who have a building license, face demolition”.
The regional government argues that the property runs the risk of creating an urban nucleus. Which urban nucleus are they referring to? Promoters swamped this area with urban settlements and sold houses to unsuspecting Brits whilst the administration fiddled about with its legislation and comprehensively failed to enforce it.”
“Has the Junta de Andalucía learned nothing? Demolitions damage the beleaguered property market and the international reputation of Spain. The response of the regional government to this planning disaster is more tinkering with the laws, creating, in our view, even more confusion, complexity and traps for an unwary purchaser to fall into. Oh, and by the way” the spokesperson concluded “if you want to purchase a house in Andalucía, the Property Register, currently gives this house a clean bill of health”.
Immigrants Lose in Imploding Spanish Housing Market: Mortgages
Sharon Smyth wrote the following on Bloomberg:
Lamin Numke, a 34-year-old man from the Republic of Mali, is one of the millions of immigrants who settled in Spain during the real-estate boom, attracted by plentiful jobs and cheap mortgages, only to default on his loan.
Today, borrowers like Numke are the most likely to fall behind on mortgage payments and lose their property, according to a Moody’s Investors Service study of 890,000 mortgages from 2006 through 2008. The average default rate for foreign residents is “strikingly high compared with mortgage loans to Spanish residents,” Moody’s wrote in the report last month.
Faced with mounting losses, Spanish banks have reduced new lending, which the National Statistics Institute in Madrid said fell 35.8 percent from a year earlier in November, the 19th straight decline. The bad loans to immigrants are also complicating a push for Spanish banks to recognize greater losses on real estate they accumulated during the crash and driving buyers from the 182 billion euro ($240 billion) Spanish residential mortgage-backed securities market.
“Deals with a significant portion of foreign residents, whether immigrants or vacationers, are double no deals for me,” said Alexander Fagenzer of Union Investment GmbH in Frankfurt, which oversees 120 billion euros. “Incentives for those borrowers to keep paying are significantly lower than for Spanish residents,” and that’s “key in a country facing high levels of unemployment and declining housing prices.”
Unwanted Assets
Financial institutions have foreclosed on 328,720 homes since 2007, according to Plataforma de los Afectados por la Hipoteca, a group known as PAH that campaigns against evictions. Repossessed houses in Spain are valued at 43 percent less on average than the appraisals on the mortgages, Fitch Ratings said in a Dec. 15 report.
Lenders, whose bad loans as a proportion of total lending jumped to a 17-year high of 7.42 percent in October, have also acquired properties from developers to cancel debt and may have as many as 900,000 finished, unfinished and foreclosed homes on their books, according to Borja Mateo, author of “The Truth About the Spanish Real Estate Market.”
Spain’s economy will contract by 1.7 percent this year, according to forecasts by the International Monetary Fund. The economy grew at an average rate of 3.9 percent a year in the decade through 2006, and the immigrant population swelled eight- fold to 4.1 million as foreigners flocked to Spain, attracted by plentiful jobs in construction and services.
Relaxed Requirements
That propelled demand for new mortgage loans which peaked in 2005, according to the National Statistics Institute. Immigrants held five percent of outstanding mortgages at the peak of the home lending boom, according to a report by the Institute of Fiscal Studies, a government-backed research organization.
That year, Numke, who arrived in Spain a decade ago, paid 231,000 euros for his three-bedroom apartment in downtown Madrid with a 100-percent mortgage granted by Caja Madrid, a Spanish savings bank that was merged with six other troubled lenders in 2010 to form Bankia SA. Spanish banks had relaxed borrowing requirements even for people who, like Numke, had short-term work contracts with nothing to back the loans.
Like thousands of workers in the construction industry, Numke lost his job in 2008 after the real-estate bubble burst. Construction accounted for about 18 percent of gross domestic product at the height of the boom, according to a McKinsey & Co. report. That’s fallen to about 11 percent, data compiled by the Statistics Institute show.
Rising Unemployment
Spain’s unemployment rate rose to 22.9 percent in December, Eurostat said. The country is home to a third of the euro region’s jobless and half of young Spaniards are estimated to be out of work, according to the EU’s statistics office. The number of unemployed non-Spanish residents surged to 1.23 million in the fourth quarter of 2011 from 306,300 five years earlier, according to Spain’s Statistics Institute.
Numke stopped paying his mortgage when his savings dried up and repayments doubled, adding to the burgeoning number of foreign residents driving up defaults for Spanish lenders already facing a five-fold increase in residential mortgage arrears since 2007.
“Bankia refused to take the keys and cancel our loan,” Numke said in an interview at the property on Jan. 17, the day before he, his wife, two-year-old son and 4-month-old daughter were evicted. “The bank is only harming itself by taking on another foreclosed home and still chasing us for a debt that we’ll probably never be able to repay.”
Higher Defaults
The second-most risky debts are loans originated by mortgage brokers rather than bank branches, according to Moody’s. Historically, bank branches issued most mortgages in Spain. When lending peaked brokers played an increasingly important role.
“Loans originated by mortgage brokers have higher default rates in large part because of the socioeconomic profile of borrowers contacting a mortgage broker,” Moody’s analyst Tena Centeno wrote in the Jan. 12 report. “Broker remuneration is fee-driven and linked more to volume than the credit quality of the applicant.”
Marisa Mazabanda, a 35-year-old Peruvian, was earning 1,200 euros a month as a cleaner when she was granted a 100-percent 198,000-euro loan by a mortgage broker in 2005 that was 14 times her gross annual salary. Milenium, the broker she used, added other mortgage applicants to her loan request as guarantors to get it approved. Milenium has since been dissolved.
‘Prices Never Fall’
“I was a bit frightened of taking on such a huge amount of debt, but the mortgage broker just kept telling me home prices never fall and if I lost my job I could sell my home at a profit,” Mazabanda said. “I thought: if this is legal and they are offering me the money, what can go wrong?”
House prices, which more than doubled in the decade through 2007, turned negative in the first quarter of 2008 and have since fallen by about 17 percent, the Ministry of Public Works estimates. Home sales are down 65 percent from the peak in 2006, according to the agency.
Mazabanda lost her job and found another that paid 600 euros a month, while her monthly payments rose to 1,200 euros. She stopped paying her mortgage and lost her home in 2007 because she couldn’t sell it for as much as the loan.
“It’s well known that banks provided subprime loans during the boom, even though they won’t admit it and there’s no official data to prove it,” said Fernando Rodriguez de Acuna Martinez, consultant at Madrid-Acuna & Asociados, a Madrid-based real estate research and advisory company.
Acuna says lenders regularly granted mortgages with repayments that exceeded guidelines of 33 percent of families’ incomes, inflated valuations above actual selling prices in order to distort loan-to-value ratios and accepted multiple guarantors for individual mortgages, according to Acuna.
“We have seen cases of as many as nine parties being used as guarantors for one property,” Moody’s Tena Centeno said in a telephone interview.
The result is bad news for the banks that granted the mortgages in the first place and for holders of RMBS tied to the loans, Acuna says.
The extra yield investors demand to hold top-rated Spanish home-loan bonds more than lending benchmarks is 550 basis points, or 5.5 percentage points, according to JPMorgan Chase & Co. data. While the spread has narrowed from 640 basis points this year, it’s expanded from 400 basis points since the start of 2011. The spread compares with relative yields of 475 for debt tied to Italian borrowers, 152 basis points for those in the U.K. and 150 basis points for debt tied to Dutch homeowners.
It’s “a difficult year ahead for Spanish RMBS,” said Tina Stumpf, a Frankfurt-based securitization analyst at DZ Bank AG, citing increasing unemployment rates and possibly declining home prices.
“Foreclosed properties are hard to sell because anyone in a position to buy simply doesn’t want them due to their quality and location,” Acuna said. “Given the fact that most immigrants just go back home, the probability of recovering the money from these mortgage holders is zero.”
Si (
No(
