Wednesday, June 16, 2010

News from Overnight on Spain

· Spain – the EU denies (again) that it is planning a Spain credit line w/the IMF and US; Amadeu Altafaj, a spokesman for the EU executive, said the report in the newspaper El Economista was "very bizarre" and added: "I can firmly deny it."; the paper reported that the EU/IMF/US were preparing a EU250B liquidity plan for Spain. (Reuters) 
· Spain – the FT notes that Spanish banks borrowing record amounts from the ECB amid continued tensions in the private capital markets; Spanish banks borrowed €85.6bn ($105.7bn) from the ECB last month (vs. EU74.6B in Apr).  FT
· Spain – the head of the IMF will meet w/the Spanish PM on Fri, although people insist the meeting is unconnected to reports of a Spain bailout (Reuters) 
· Spanish retail banks – JPMorgan note - Suffering the perfect storm, but still in capital preservation mode - remain negative on subsector - We would still avoid exposure to Spanish retail banks as (i) Spain remains late cycle, despite progress made on the political/savings banks front, (ii) funding risks cannot be underestimated, as the causes of market jitters are real (excessive leverage), (iii) balance sheets are not fairly valued yet, a necessary condition to restore market confidence, (iv) none of them trade on attractive enough valuations (70%-90% TBV) vs. Euro sector.  We cut our EPS estimates by c.15% to reflect lower NII figures (no stabilization in 11/12E as previously expected) and higher (property) impairments, but still see all banks avoiding a scenario of accelerated losses, and hence capital should be preserved (8.0% average core ratio). We remain Neutral on POP/BTO, UW on BKT/PAS.  
· Spanish banks - between 20 and 25 Spanish savings banks out of an original 45 will emerge from the process of consolidation underway - Bloomberg
· Spain playing "high-stakes poker" w/Germany - Spain is pushing for the release of EU stress test results for major banks in a move that risks precipitating a dramatic escalation of Europe's financial crisis (German insists on the tests staying secret).  "Spain's two heavyweights, Santander and BBVA, are well capitalized, though there are concerns that Spain's accounting rules mask the full horror of bad debts in the property sector. The problem lies with savings banks or cajas that are not part of the EU test." London Telegraph.

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