Traders are jumping back into Spain today, but the ominous
deterioration of the country's credit markets isn't going away just
because these stocks are getting a relief bounce.
[caption id="attachment_57172" align="alignright" width="300"
caption="North facade of the Bank Of Spain headquarters, Madrid"]
The Bank of Spain released numbers yesterday demonstrating that
the country's lenders now hold close to
$200 billion in "doubtful" loans
-- a full 8.2% of their total portfolios -- and that the default
rate is still rising.
If the trend continues, another $5 billion in Spanish loans will
rot every month. With
even before significant austerity programs kick in, it's unlikely
that the pressure on Spanish borrowers is going to let up in the
And should things get worse, the burden won't necessarily fall
on fly-by-night finance companies. According to the Bank of Spain,
niche lenders have actually cleaned up their books after the credit
These street-level institutions are still running a little hot,
with maybe 8.4% of their loans going bad, but that default rate has
come down quite a bit from the red-alert levels of 9% to 10% we saw
in 2010 and 2011.
Instead, the danger seems to be concentrating at the top of the
Spanish financial chain: the money centers and other depository
banks that dominate the country's fragmented credit markets.
In late 2010, the banks reported an overall default rate of 5.5%
of their holdings, a little less than half what the specialty
lenders were seeing.
Since then, another $55 billion in debt has gone sour, forcing
the bankers to divert more of their funds to cover their losses and
pulling that money, in turn, out of economic circulation.
Bottom Line: While world-renowned names like Bilbao Argentaria (
) and Santander (
) may have looked cheap to traders this morning after yesterday's
losses, the fundamental trend does not look good.
These banks still need to stem the bleeding, probably by
selling off their most lucrative assets
in the emerging world. Take your trades while you can.