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Monday, April 23, 2012 10:37 AM

Eight of Ten Largest Stocks in Spanish Ibex Index Below Liquidation Value; Madrid Rejects Regional Budgets Representing 32.5% of GDP; Treasury Warns of "Immediate" Intervention

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The Spanish hit parade keep right on rolling. Courtesy of Google Translate, please consider a trio of articles forwarded by my friend Bran who lives in Spain.

Madrid Rejects Regional Budgets Representing 32.5% of GDP

El Economista reports Treasury Rejects Budgets Submitted by Catalonia and Andalusia

The Ministry of Finance and Public Administration has returned the draft budget to the regions of Andalusia and Catalonia because it considers its budget rebalancing plan does not fit within the deficit target regions set for this year, 1.5% of GDP.

The newspaper El Pais said today that two of those affected are Catalonia and Andalusia, two of the larger communities, who number between 32.5% of Spanish GDP.
Treasury Warns of "Immediate" Intervention

Going one step further, Treasury warns that Any Autonomy may be Subjected to an "Immediate" Intervention"

Forced Austerity in the regional governments is coming right up.

Spanish IBEX Index

The Spanish stock market has now given back nearly all of its gains since March 2009.

Eight of Ten Largest Stocks in Spanish Ibex Index Below Liquidation Value

Please consider Eight of Ten Largest Stocks in Spanish Ibex Index Below Liquidation Value

The article states it is "ludicrous" that eight of the ten heavyweights trade below their book value.

I suggest book values are inflated and the Spanish banking system is insolvent. Certainly credit default swaps on sovereign debt are not encouraging.

Check out this nonsense by JP Morgan.
"The banking problem is not liquidity, but mainly of confidence," says JPMorgan Pellón mentioning that pointed in recent days that Spanish banks retain about 90,000 million from the program LTRO European Central Bank. Enough money to meet all funding requirements for the remainder of the year.

The balance of mid-cap banks is less oprtimista yet. For example, trades at 0.29 times Bankia the value of its assets and the rest is between 0.4 and 0.5 times.

The banking sector is the one that is suffering the deterioration of its balance sheet, but some utilities and Repsol also find it impossible to trade above its liquidation price. Among the utility companies with greater capitalization is Iberdrola which has a lower book value after the sale of 3.7 percent of its stake ACS take her to make minimum contributions since 2003 this week.
Inflated Book Values, Insolvent Banks

Banks may have LTRO funding but it would be nice if the clowns at JPMorgan would advise exactly how Spanish banks are going to pay back those loans.

The problem is not confidence nor liquidity, but rather solvency. In the absence of further bailouts, many European banks have negative value.

What About the Euro?

Moreover, JP Morgan missed another crucial point, best expressed by the question: What happens in a eurozone breakup when Spain exits the Euro?

Since that is a significant possibility (I believe likelihood), anyone in Spain with any money and any common sense should get their money out of Spain right now.

Capital flight is indeed underway and that flight will continue to pressure Spanish equities until it stops.

Capital controls may be just around the corner.

Mike "Mish" Shedlock
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