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Wednesday, April 18, 2012 10:32 AM

Hopeless Situation in Spain: New Wave of Defaults as Home Prices Crash; Bad Loans Highest Since Oct '94

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Bad news upon bad news keeps piling up in Spain as the government still insists it can meet deficit targets without needing a bailout. Anyone with any common sense knows there is no can left to kick.

Reuters reports Spain banks' bad loans highest since Oct '94

  • Non-performing loans rise to 8.2 pct of portfolios
  • House prices fall 7.2 pct in Q1
  • Defaults to keep rising on back of budget cuts

Spanish banks' bad loans rose to their highest level since Oct. 1994 in February, to 8.2 percent of their credit portfolios, Bank of Spain data showed on Wednesday, as the sector continues to battle sliding house prices and a looming recession.

Banks are facing a new wave of loan defaults as an economic crisis deepens and analysts say some may not survive as the government implements sweeping budget cuts that will only add to Spanish households' problems with repaying debt.

Non-performing loans increased by 3.8 billion euros ($4.99 billion) to 143.8 billion euros in February from the previous month. They totalled 7.9 percent of total debt portfolios in January.

That picture - driven by the collapse of a housing boom in the global financial turmoil of 2008 - is at the heart of problems for Spanish banks that have seen other institutions refuse to lend to them and forced some to rely on the European Central Bank for funding.
Hopeless Situation

Back on March 28, my friend Pater Tenebrarum on the Acting Man blog pinged me with the following comments.
The situation is totally hopeless. If banks were to raise their puny loan loss provisions by just 1% of total loan exposure, it would eat 12% of their tangible net asset value.

These banks are completely insolvent. I actually think all of Spain is bankrupt at every level of its society, from households to banks to the government.

Apart from their exposure to €200 billion in 'problem loans' (to developers, consumers and in the form of already foreclosed loans), they have an additional exposure to €1.6 trillion in 'other loans', including mortgages, of which they say only 2.4% are delinquent (a certain bridge in Brooklyn comes to mind).

It looks to me like Spain will become a huge problem for the eurocracy.
Yes indeed, it already has.

Mike "Mish" Shedlock
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