Hit by Global Turmoil, Banks in Spain Get Jittery (Again)

Hit by Global Turmoil, Banks in Spain Get Jittery (Again)

Big Trouble in Emerging Markets.

By Don Quijones

Banking stocks in Europe continue to benefit from the gravitational pull exerted by the so-called Trump effect. But the effects have not been felt universally. Monte dei Paschi di Siena, which is at the center of Italy’s banking crisis, has been reduced to a penny stock. The shares of Italy’s other large banks continue to trend downwards. And the problems in other national banking sectors have not gone away; they’ve just been consigned to the background. Such is the case in Spain, where the risks and challenges in the country’s banking system continue to bloom.

Spain’s Very Own Homegrown Monte dei Paschi.

The multiyear decline of Banco Popular, Spain’s fourth biggest bank, has been no less spectacular than Monte dei Paschi’s, having lost 98% of its stock value in the last nine years. The shares are now worth just €0.85 (compared to over €15 in 2007) and continue to shed value. Over 7% of its shares are being shorted by London and Connecticut-based hedge funds.

The biggest cause of concern is Popular’s plan to spin off €6 billion of impaired property assets into a vehicle optimistically christened “Sunrise,” which might not go far enough given the bank is estimated to have €30 billion of toxic assets festering on its balance sheets. In its latest report, S&P declined to downgrade Popular’s rating, though its choice of words at times, including “moderate solvency” and “ambitious plan” (to describe Sunrise), hardly inspire confidence.

To make matters worse, a bitter power struggle is being waged between Popular’s long-serving president, Ángel Ron, who has occupied the top spot since 2006, just a year before the rot began to set in, and a cluster of board members led by Mexican billionaire Antonio del Valle who, together with his associates, owns 4.25% of Popular. Del Valle has already made a name for himself in the banking business by turning around Chicago-based Metropolitan Bank Group, after acquiring the business for a fraction of its book value. Now he appears to have his sights set on a much larger prize.

Big Trouble in Emerging Markets. 

Since Trump’s election, Spain’s two biggest banks, Santander and BBVA, have seen their shares slide, by 3% and 11% respectively. The simple reason for this is their bloated exposure to emerging markets, whose assets are cascading in response to a strengthening dollar.

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.