EuroCrisis Spain, Banks Made Fatal Error

By Roger Baettig | May 03 2012 5:42 AM

Spanish banks, that have little or no access to wholesale debt markets after losing billions as a decade-long property bubble burst in 2008, took in vast amounts of cash the European Central Bank pumped into the euro zone banking system in December and February, in operations totaling more than a trillion euros.

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Data from the Bank of Spain suggests that they used a portion of the ECB's ultra-cheap three-year money to buy up high-yielding sovereign debt, an error they may prove fatal for some banks.

Given the default in Greece the high yield and likelihood of a default in Spain should have rung enough warnings bells for the banks not to be heavily invested in Spanish debt.

According to the central bank, Spanish lenders held just over 13 percent of domestic debt in November 2011, but that total soared to almost 30 percent by March. Non-residents held almost 56 percent of all Spanish debt in November, but by March, that proportion had fallen to 38.8 percent.

These numbers are frightening and as Spanish debt has suffered a single downgrade those losses will to some extent hit the balance sheets of Spanish Banks today.

Long Term any institution holding Euro Government debt should be accounting for the potential losses of up to 60% of the value of those assets.

Shayne Heffernan

Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.

Shayne Heffernan holds a Ph.D. in Economics and brings with him over 25 years of trading experience in Asia and hands on experience in Venture Capital, he has been involved in several start ups that have seen market capitalization over $500m and 1 that reached a peak market cap of $15b. He has managed and overseen start ups in Mining, Shipping, Technology and Financial Services.Read the Terms of Service