Spain's property market

Tricks and mortar

The central bank makes life a little easier for lenders

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Readers' comments


The Economist still seems to kowtow to Santander and BBVA. Why should we believe that Santander, for example, has avoided the worst of this houing meltdown?
It seems difficult for me to understand. Can anyone explain it to me!

Santander seems to specialize in offering banking services to individuals and mortagages. I lived in Spain in ´05, ´06, ´07 for example, when they were offering 100% mortgages and they did advertise long long terms, north of 30 years. Surely all the business that they wrote during this period is in danger of going underwater or up-side down.

The much quoted Bank of Spain counter cyclical medicine can´t really do much good if the bank puts away "somewhere" for a rainy day say 3% of the value of a loan, if then house prices have fallen 25%. And Tito Pepe´s house that was used as a guarantee against the new mortgage has surely fallen in value, so that prop is getting worn down quickly too.

Keys in Spain are not getting mailed back yet in the jingle mail, but there´s a lot of wishful thinking going on here. Not to mention very low interest rates, which if they get withdrawn anytime soon will surely make many face their reality.

Santander´s days of glory may fast be running out, and my bet is that it´ll come sooner rather than later, especially if interest rates rise quickly or the true scope of oversupply of housing becomes apparent.


Juan Hervada makes a key point is his analysis: Because Spanish savings banks are managed by regional politicians (and even the catholic church in one case), they are much more exposed to the property bust then normal banks. One savings bank (Caja Castilla la Mancha) has already been put under direct Bank of Spain supervision. The political chairman of this savings bank intervened continually in the day-to-day risk decisions made by CCR and may be held personally responsible in the courts for part of the subsequent financial debacle.

With Mr. Zapatero's future depending particularly on regional support in Catalonia and Andalucia, public money has already been made available to shore up the savings banks and merge them.

So the next crisis may be about bank reserves and property valuations, but the one after that will be about savings banks again: Due to political pressure, the bigger (merged) savings banks from this crisis will over extend themselves once more when growth comes back. But this time they will just be "too big to fail" and of course will need public money yet again to build up their balance sheets.


Thank you Javbal for the link to this interesting, albeit only for those 'fluent' in Spanish, article it reveals some very sobering figures, realistically though the doom mongerers could benefit from a little more historial perspective in my view, Spain in its current form is little more than 30 years old and inherited a very poor situation in almost every respect, not just economic, from its dictatorship. The growth of the nation has been 'picture book' and exemplary. Realistically Spain didn't even consider itself alongside the US, Japan or Germany in economic terms 20 years ago. In my view, although the current crisis, and this particular initiative by the government to hide liabilities in accounting practice, represent a step backwards, Spain overall has been an incredible success in the last 30 years and ought to build on the incredible character its sportsmen and women currently demonstrate in holding a large part of the world titles in most popular sports, the same character that rebuilt the nation from the proverbial 'ashes'.

Spain is not doomed but its recent economic growth may prove short lived.


This coordinated – dishonest cover up of real financial problems is happening at the highest global levels. What is unfortunate is:
Those on top of the food chain, that can protect themselves from violent fluctuations in the all markets and perhaps from future hyper inflation, will survive and make a profit too. The ordinary man, hard working laborer, school teacher and others with fixed income, will pay the price for the excesses of others and the cost of government bailouts of the rich.


Unfortunately, the pictured depicted in your article is much more benevolent than it should be. Banks are not disclosing the real figures. And now, the Spanish Central Bank, with the measures you mentioned, is even helping them more to manipulate their financial statements and, therefore, reality. But sooner rather than later we will all have to face the truth that many financial institutions in Spain are badly insolvent. This will become clearer as the second troubling financial wave strikes the market as a result of higher unemployment, and the resulting mortgage and credit card defaults and NPLs, in general.

Beneath all this, we also have a weakening real economy and a discouraged society entering its second year into the crisis.

For those interested on this subject I highly recommend them to read the set of articles about the real crisis evolving in Spain at:

Juan A. Hervada

"Postponement" is an understatement (very compassionate indeed). The new creative accounting practices for the Spanish banking industry heap upon a solid base of imaginative accounting designed to avoid the reckoning hour of mark-to-marketing the banks' assets.

In my opinion those figures on bad loans are grossly underestimated. So much so that it hardly makes sense to give a figure, neatly with decimal point and all; rather one should use the terrible "at least."

One point thet the article should have addressed in greater detail is the fact that the Spanish oh so idiosyncratic political class (my turn to indulge in understatement) has a decisive direct influence over about one half of the financial system at the regional level through the saving banks, all very heavily exposed to the toxic asset bubble. Those local political honchos have a big say over Mr. Zapatero's future, much dependent on their support to stay in office.

Taking into account Mr. Zapatero's frame of political logic and particular brand of moral relativism, that bodes ill for rank-and-file Spanish banking: he will continue to favor hiding the bad assets under the lax-accounting rug… until this new bureaucratic generated bubble explodes, that is.


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