Spain is Accelerating Down a Slippery Slope

Posted by - Tuesday, September 4th, 2012

In spite of recent ECB intervention and assurances to the contrary, Spain's banks are accelerating down the path towards insolvency.

Spanish banks saw a 4.7% drop in deposits for July when compared with June. The outflow totalled $93 billion.

spain bank outlows

(Chart from Goldman Sachs courtesy of Also Sprach Analyst)

Banks aren't the only ones withering away either. On a three-month rolling basis, portfolio and investment outflows from Spain totaled 52.3% of the country’s GDP. International investors accounted for 19.4% by selling securities while residents accounted for 16.7%.

All of this is occurring while Spanish banks continue to sit on massive piles of bad loans. Bankia, a conglomerate of seven regional banks, just had to put $8.24 billion of bad loans on the ledger, causing an operating loss of $5.58 billion. The Spanish government immediately reaffirmed its pledge to support the bank, which will add billions in new sovereign debt.

Considering ten year yields are around 6.8%, thirty year yields are around 7.3%, roughly $25 billion in debt is maturing by October and the country has to add much more debt through its bailout agreement, Spain is looking at a terrible money crunch already. Adding emergency bank triage measures to that list is a recipe for disaster.

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