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Thursday, May 17, 2012 7:36 PM

Spanish Bank Debt With ECB Up 15.7% in April; Surprise VAT Hike Coming Up; Moody's Downgrades 16 banks; Capital Flight at Bankia; Scramble for Deposits Leads to System-Wide Cannibalization

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Courtesy of Google translate, please consider the following bleak reports from Spain.

Spanish Bank Debt With ECB Up 15.7% in April

El Confidencial reports The Spanish bank debt with the ECB increased by 15.7% in April

The debt of Spanish banks with the ECB shot up to 263.535 billion euros in April, that is 15.7% compared to 227.6 billion recorded in March, a new record, according to the Bank of Spain. This amount is outstanding entities resident in Spain still have yet to return to the European Central Bank as a result of the funding the agency has been granted previously.

The net financing granted in April by the Eurosystem to Spanish banks accounted for 68.8% of total Eurozone, which amounted to 382.712 billion euros. However, the gross amount of appeal does not collect the money that Spanish banks have borrowed from the ECB and have been redeposited in the body to receive a return of 0.25% a day.

The increasing difficulties of Spanish institutions to borrow from the interbank appreciate finding that the credit requested by Spanish banks headed by Mario Draghi school increased sixfold compared to that recorded in April 2011 (42.227 billion).
Surprise Vat Hike?

Hiking taxes in the middle of a recession is horrendous policy. Yet one should never underestimate the potential stupidity of bureaucrats.

El Economista reports The Government is preparing a surprise rise in VAT for up to three points by 2013
Mariano Rajoy's government is determined to adhere strictly and without delay the requirements of Brussels to get the unequivocal support of the European Union to reform measures taken and to try to appease the markets. This is the VAT in the rest of Europe: average at 20.9%.

So, on Monday, the minister Luis de Guindos, acceded to the wishes of Merkel and European Commission to be the European Central Bank (ECB) who audit the Spanish banks. And now, the chief of government has already committed to some partners of his confidence that the government might have to climb two or three points in the VAT, by surprise, without waiting for 2013, as planned.

Specifically, Rajoy met last weekend privately with the president of the CEOE, Juan Rosell. A meeting that was held at the Moncloa Palace and that was unveiled yesterday at the meeting of the Board of the Spanish employers that some attendees described as "a funeral" to the bleak picture of the business leaders to draw on our economy.

And the funeral was the scenario that Juan Rosell took the opportunity to ask business leaders support unreservedly to government reforms, despite the critical position CEOE has kept tax increases approved for the Income Tax and Companies.

And it was at that funeral in which some of the attendees told that during his speech, the president of the employers said that while Rajoy is not in favor of raising the VAT, may be forced to do it, and surprise.
Moody's downgrades 16 Spanish banks

Reuters reports Moody's downgrades 16 Spanish banks
Moody's Investor Service carried out a sweeping downgrade of 16 Spanish banks on Thursday, including Banco Santander, the euro zone's largest bank, citing a weak economy and the government's reduced ability to support troubled lenders.

All the banks' long-term debt ratings were downgraded by at least one notch, and some suffered three-notch cuts.

Thursday's move came after Moody's downgraded 26 Italian banks on Monday and followed a press report about a run at troubled lender Bankia, Spain's fourth largest bank. The Spanish government, which took over Bankia last week, denied the report.

Santander suffered a three-notch cut to its long-term rating to A3 from Aa3.

Moody's also cut BBVA's long-term rating by three notches to A3 from Aa3 and put the credit on a negative outlook. BBVA is Spain's second largest lender.

The government's borrowing costs shot higher on Thursday after data confirmed the economy was back in recession.

Prime Minister Mariano Rajoy said Wednesday his government, which is struggling to reduce the budget deficit, could soon have trouble financing itself in the bond market unless the pressure eases.

The government's strained finances are another risk for banks, since many have used cheap loans from the European Central Bank to buy three-year and five-year government bonds.

Through March, Spanish banks held almost 150 billion euros of Spanish government bonds, up from about 76 billion at the end of November.
Capital Flight at Bankia

Please consider Bankia have lost 1,000 million in deposits in one week
Bankia customers have withdrawn deposits worth over 1,000 million euros since the government announced its intervention last week, according to data presented suggest the board meeting yesterday.

On Wednesday, Bankia not respond to Reuters requests asking whether there were bank runs Thursday and no one has commented on the information published by the newspaper El Mundo in its paper edition.

According to this method, was at the meeting yesterday with senior management where the CEO, Francisco Verdú, brought the fact of multi withdrawal of funds: Bankia days would have lost a similar amount to 1,160 million withdrawn in the first quarter.

The withdrawal of money from customers Bankia is due to the mismanagement of the departure of Rodrigo Rato for the entity and the subsequent nationalization.
Scramble for Deposits Leads to System-Wide Cannibalization
Here are the key paragraphs from the above article.

The competition from the big banks is a point of concern to the entity. In fact Santander is showing particularly aggressive in trying to attract customers disenchanted with Bankia have decided to withdraw their savings from the entity.

For his part, Jose Ignacio Goirigolzarri, has not made ​​any statement on these data and harangued their managers to work hard to retain customers. The new president of the organization claimed that "Bankia is a solvent entity, which continues to function quite normally and that offers total security."
Spain goes deeper in trouble every day. No one can possibly believe "Bankia is a solvent entity". In fact, the entire Spanish banking system is clearly insolvent.

Mike "Mish" Shedlock
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