The Spanish banks are in serious trouble and it's not a good sign for Europe because it means there will be more bailout packages.
FT Alphaville reveals that after cutting Spain's credit rating, the ratings agency Fitch has now downgraded a slew of big Spanish banks. Because of their exposure to highly leveraged real estate, Fitch believes they will suffer massive losses from bad loans. And the problem, as FT Alphaville suggests, is not going to go away that quickly.
Commenator Alan Kohler says that with unemployment in Spain close to 20%, housing demand has collapsed and Citigroup estimates there is an oversupply of about one million units which, it says, will be increasing. "The IMF estimated the pre-crisis overvaluation of Spanish real estate at 20-30 per cent and with the mismatch between supply and demand likely to keep putting downward pressure on prices, the Citigroup team reckons Spain is probably only halfway through the price adjustment needed,'' Kohler writes. "The Spanish banks are not only having to deal with a continuing fall in real estate values, leading to an 'incredibly fast' deterioration in the quality of their assets, but have also had to deal with the collapse of their main business: construction lending."
The question is who is going to save the Spanish banks. The Spanish government is desperately trying to keep itself float which suggests another European bailout package is on the way. How many more can we expect?
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