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Tuesday, March 26, 2013 1:08 AM

Men in Black Seek Answers; Troika to Return to Spain in May Asking "What Happened to €42 Billion in ESM Bank Recapitalization Tranches?"

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SAREB, Spain's bad bank, has received assets (primarily bad loans) from Bankia, NCG Banco, Catalunya, Caixam, Banco de Valencia and others.

Bankia, a component of Spain's nationalized bank system has been one disaster after another. Guru's Blog reports that had you invested €37,500 in the IPO of Bankia at €3.75 per share, it would be worth 70€ today, a loss of 99.81%. Had you waited to buy at the bargain basement price of €0.26, your investment would be worth €1,009, a loss of 97.3%.

That's quite the loss. Bankia shareholders have been wiped out. Recovery is impossible.

Men in Black Seek Answers

The question at hand now is "What Happened to the €41 billion Spain received in two tranches of ESM money for bank recapitalization?"

That's a good question and one the "men in black" want to know as well.

El Confidencial reports Troika Will Return to Spain in May to Investigate Bankia

The troika, made up of the European Commission, the ECB and the IMF threaten an upcoming visit to Spain, during the last week of the month of May. The 'men in black' come this time seeking to clear up some of the derivatives in the famous bank bailout.

Specifically, the Troika will put a magnifying glass on Spain to check in detail the fate of the more than 41 billion euros delivered to the Government of Mariano Rajoy. The effective distribution of the two tranches of the ESM bailout is troubling supervisors. They also do not understand the development of other obligations as set out in a memorandum of understanding (MoU) signed last July.

One of the aspects of most concern in community media is the convoluted relationships between entities that have received public aid and the bad bank (SAREB) reluctantly created by the Spanish Government.

The 'men in black' do not understand why the SAREB has called for a draconian discount on the  transfer of the assets of the bubble, then claim an extra 25% margin on retail prices. The spread in absolute terms is about €13 billion over the €51 billion in assets acquired by the bad Bank. It's an amount equivalent to 30% of the resources used in the capitalization of problem institutions.

International supervisors also question with some suspicion the mode and manner by which the banks have not been able to find market for their properties.

Finance minister Luis de Guindos said on Friday the solution will be to force all banks to loosen their pockets and spend another €2 billion, an extraordinary spill. The troika believes that this formula is not the most equitable since precisely the entities that have been nationalized will need new cash contributions.
This was an exceptionally difficult piece to translate. I believe I have the gist correct but if you read Spanish you may wish to refer to the original El Economista Article.

The key point is the "men in black" will be in Spain trying to figure out what happened to €41 billion in ESM tranches that Spain received to recapitalize its banks. They also want to understand why SAREB cannot sell its properties.

The answer to the latter question is easy enough to figure out. Banks valued the assets too high, there is no market for them, and writeoffs will be even bigger than previously estimated.

In short, SAREB will need still more money. The "men in black" will not be pleased.

Mike "Mish" Shedlock

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