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Thursday, December 18, 2008

Spain banks harder than you

Spain's big international Banco Santander has won plaudits for not collapsing into a smelly pile of taxpayer-funded awfulness, like every other bank. Spain, like the US, UK, Ireland, and wherever else, suffered a huge housing-fueled boom which has since imploded. Santander's secret then was to have been regulated by the Bank of Spain, which, unlike other regulators and central banks, decided to skip siesta.
“What they have on other countries is that the accounting and regulatory framework has been awesome,” says one senior foreign banker in Madrid.
He later added, "dude, and their counter-cyclical generic loan-loss provisions were totally killer."

The Bank of Spain, ever the overbearing parent, made it prohibitively expensive for Santander to experiment with off-balance sheet gateway drugs like SIVs. SIVs were the main vehicles through which shitty banks invested in other shitty banks' mortgage backed securities like CDOs. They didn't have capital requirements, because they're not on-balance sheet, unless of course, oops, their funding dries up and their shittiness does in fact end up on-balance sheet, which is exactly what happened. And since no one held capital against them, their losses caused everyone to raise capital by selling into a falling market yay! If this doesn't make sense to you on any level, that's exactly the correct response. How these fucking things were legal in the first place I have no idea.

[above]: "Hey, it's cool, man. Standard and Poor's gave it AAA."

So while all the cool kids were out shooting up CDOs, Santander was at home doing homework and practicing clarinet like a loser.

Now, ironically enough, Santander is whining because all of their competition is on welfare, which leaves them at a disadvantage. Banker dude explains:
[T]he emergency nationalisations of US, UK and other European institutions – accompanied by capital injections – have had the perverse effect of making healthy Spanish banks appear short of capital when lists are drawn up and capital ratios compared by analysts. “What’s happening in Europe is that the shittiest banks got saved first,” says the foreign banker.
Trouble is also lurking at Spain's regional banks, the cajas del ahorros (which means "banks of the whore-ohs", I think), which invested in NOTHING BUT property. If they can weather this shitstorm, Spain will be well-placed to retake the colonies it lost in the Spanish-American War.

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