Have Cake - Eat It, Too

Attracting a touch of attention is the announced sale of Santander's 32.5% stake in petro-minnow, Cepsa, at 30 to 35 euros a share - this being around 50% below Monday's close. That's what happens when you want to bail out of a listed company so illiquid that, according to Reuters' numbers, it would take 2,066 average trading days for SAN to accomplish the same through the exchange.

If Santander completes the deal, the company stands to pocket something just shy of 3 billion euros. Now, it is possible that Emilio Botín is going to use this money to stave off bankruptcy. But we sincerely doubt that this is the issue. However, John Hempton's stellar piece today on the sublimely beautiful win-win situation the big losers find themselves in today does give us a hint as to what a bank with cash, or cheap and available credit, can accomplish in today's environment.

Everybody knows that the nearest thing to heaven is to be owed money by a reliable debtor in times of disinflation (or, dare we say it, price deflation). As such, it is wonderful. But if the reader adds on the newly discovered risk premium a lender can charge - here, for example - because cautious is definitely the groovy and contrite thing to be and because the world economy is 'collapsing', 'falling off a cliff', or undergoing any of a series of B-movie metaphors that many of the modern learnèd now feel are acceptably scientific conclusions to be drawn from economic data*, he or she will get a clue as to how the game is, unfortunately, won right now.

*Speaking of win-win setups, none is better than that enjoyed by diseminators of histrionics in times of stress. If we were to assure the reader that 'we are going to hell in a handbasket', and then back it up with skyrocketing unemployment figures and tanking GDP stats, when it is all over we stand zero risk of being wrong. On the one hand, it's purely a judgment call if such took place. On the other (and in the event that we were forced to admit to ourselves that it didn't get as bad as we thought), we can always say that it was never meant to be taken literally - and that the reader was an idiot for believing it.

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Star Attraction

We doubt that it has gotten by any of our readers that the two big media winners arising from the current economic debacle are Nouriel Roubini and Nassim Nicholas Taleb. The first we can understand (although he has done a little too well for himself from all this to still be considered a disinterested party).

But Taleb?

Who charmingly seduced book buyers into believing that every criticism he levelled at others didn't apply to himself?

Who ran a sub-performing investment strategy on the basis of a faulty calculation of the probabilities that it would work?

Whose, possibly correct, claim that 'he saw it coming' is based on having studied a different data set (that revealing what is nothing more mysterious than an overcrowded trade), not on any particular insight into improbable events that the 'imbeciles' didn't have?

Whose erroneous position that banks assessed risk improperly because they were stupid reveals a serious ignorance or denial of where the rewards in the system lay?

Seeing images of him basking at Davos in the sweet light of universal adulation, it couldn't help but occur to us that he is to the credit crisis what an equally trivial front man for a mediocre Irish rock band was to the era of cheap liquidity. Can they please get Van Morrison next year, instead?

As an aside, among the sociological marvels of the present - second only to the successful election of Obama - would be America seeking economic succour from two natives of the eastern Mediterranean.

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Is El País Forgetting Something?

This weekend's El País article on the causes of, and possible solutions to, the Spanish property boom and bust has been translated in is entirety to English - courtesy the efforts of Edward Harrison of Credit Writedowns.

Disagreeing with little of its analysis, we nonetheless take exception to the piece's failure to mention the role played by the unnatural relationship that arose between the banks and cajas, on the one hand, and the builders and promotors on the other. Dealt with here earlier, we will repeat only the salient points.

1). The Spanish banks and cajas, aside from having loaned heavily to the real estate industry, in the form of mortgages for raw land or construction loans, also have or had important equity stakes in many of the country's largest players;

2). The dominant national firm in the property valuation business, TINSA, is owned, directly or indirectly, by a large swath of the country's cajas de ahorros;

3). The financial institutions, like those anywhere, also lend money to house buyers.

The last thing Spain, with its culturally-ingrained tendency to value property over liquidity, needed was this group of oligopolistic cheerleaders urging the masses to buy more - price and value be damned. And the first order of business in the matter of structural reforms would be the prohibition of the holding of stakes, either equity or credit, by financial institutions in companies whose end products they are also financing the purchase of.

As a possibly naïve aside, is there not more than a passing similarity between this strategy of lending heavily to the property industry, later to pretend to slice up the risk inherent in those loans into individual home mortgages, and that of packing and selling these latter into various bond-like items? If Spain, through the foresight of the Banco de España missed out on this last step, the United States skipped the first. Might end up being a tie.

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When All News Is Bad News

Among the evidence defending a fairly pessimistic thesis presented in the most recent post in Spain Economy Watch - entitled 'Santander's Banif Fund Suspends Payments'* - we find the following perhaps inadvertantly placed bit of truly good news (at least for those who would prefer to have the eurozone remain intact). Quoting from Reuters, the author notes:

German Finance Minister Peer Steinbrueck said on Monday euro zone countries would have to pull together if one of them faced a "serious situation," adding that Ireland was in a "difficult situation."


Given that many commentators, particularly those of the Ambrosian school, have remarked that one of the possible (not to say 'probable') causes of the imminent demise of the euro was the self-evident and indisputable fact that Germany would not abide European monies being dedicated to the salvation of profligate and ill-administered fringe states, we cannot help but find Mr. Steinbreuck's declarations heartening.

To change topics to the actual case of Santander Banif Inmobilario, very interesting is the following take on the fund's dilemma. The publisher of MontalvoLand, economist José García-Montalvo, reports that two of his acquaintances, both investors in this vehicle, told him that they had recently been urged by their bank managers to redeem their shares at the first available opportunity. Confirmed by one commentor to the blog, Sr. Garcia-Montalvo does not discount the possibility that a run on the fund was orchestrated to defend against a similar, but real, eventuality.

IBEX Salad has no official opinion on this matter.

*In the interests of avoiding confusion as to what is taking place, 'suspension of redemptions' - which is what Santander Banif Inmobilario has invoked (as they are contractually entitled to do) - is not in any way a synonym for the headline's claimed 'suspension of payments'. Liquidity and solvency are not equivalent concepts, and there is no indication that the fund lacks the latter.


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Santander In The Spotlight (Again)

For the second time in the last few months, Santander private banking arm Banif Banca Privada finds itself at odds with its client base. The same entity that was apparently flogging Lehman Brothers structured paper to its faithful up to a month prior to the latter's collapse is now seeking to block redemptions from its in-house managed real estate fund, Santander Banif Inmobilario. Showing a loss of 4.21% in 2009 (and 3.42% yoy), Cotizalia reports that investors have solicted the withdrawal of some 2.6 billion euros, of the 3.5 billion total invested in the fund, for the next exit date - March 1st. In response, Santander has announced that, for lack of liquidity, it will freeze this facility until the end of February of 2011.

The fund, through its 51,000 investors, holds about one half of the total placed in this type of vehicle in Spain. As what will not be seen as a gesture of good faith, Santander has offered to lend money to customers in need against the value of their investments - at market rates.

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Readers can keep track of eurozone government bond interest rates, including Ireland, and spreads in a new table in the sidebar. The intention is to update it once a week.

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Short Sale Information

A reader was asking how to get Spanish market short sales data. Here goes...

1). Go to http://www.bolsamadrid.es/esp/bolsamadrid/publicacion/boletin/boletin.htm. That will bring up this page which gives direct access to the last five days' reports.















2). Click on any date to bring up this screen. Click on 'Operaciones a crédito, préstamo de valores'.















3). Which should bring up the following PDF file. Sometimes they include extraneous stuff. In this case, just scroll down until you find tables entitled 'Comunicaciones de Prestamos de Valores'. The columns list, from left to right the day's: new stock loans, new re-loans, total loans, loan cancellations, loans less cancellations, and accumulated short position for all the companies listed in the left hand column.















4). For dates earlier than the last five sessions, hit the 'Boletines Anteriores' button at the top right of the first screen. This will bring up the following calendar. As far as I can tell, changing the date range in the drop-down list in the top centre of the page will only get results to January, 2009. However, if the reader needs historical data badly enough to spend half his or her life getting it, the manual date entry box at the top right does the trick. Note that prior to April 12, 2007, the reports were presented in a different format. We defy our readers to make heads or tails of those... and do not ask here.















We will put a direct link to this piece in the 'Resources' list in the sidebar.

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A Fit Of Farseeing

On our return from a weekend on the Med attending to the various geriatric inanities of the in-laws - hereinafter referred to as the Shuffle Demons - we arrived home to find ourselves electronically accosted by lots of very ugly economic predictions, and went to bed half way between depressed and pissed off. The point is we're getting right tired of hearing how bad it's going to be in the future from the same flotilla of economists that couldn't find it, with the rare exception, within the grasp of their shamanistic powers to bless us with such a bold prediction in, say, 2007, or 6 or 5, when the groundwork for the present was being irrevocably laid. But no matter. The easiest route to becoming an acclaimed clairvoyant, as any punter knows, is to light up a big jimson weed blunt and go with the flow.

Our malaise, unfortunately, continues unabated through today as the morning read included five economists touting four distinct remedies and proliferating several dozen criticisms of the cures proposed by others of their caste. Let's add it up. Predictive powers beyond continuation of trend - nearly nil. Remedial powers beyond million-monkey probabilities - well, some 'school' will eventually be declared (at least by themselves) to have done the trick after time itself has done all the heavy lifting.

This, of course, leaves us with a personal conundrum - what to do with the net short portfolio when economists are screaming 'Go long!'. Well, we'll take the second best strategy, given the possibility of nasty news items appearing and the real shortage of convincing buy candidates, and close out our profitable position for the meantime (privilege reserved to retail investors) . Since we can rest assured that widespread predictions of certain depression are a sure sign that it has already arrived, we'll be devoting some time to thinking about how to turn a penny in that environment.

Or perhaps, given the traffic jam that extended one kilometre up a Madrid motorway Saturday from the exit to some big box park, could one even dream of taking the under on the duration bet? Between the possibility that the corporate world has way overshot in its negativity, the resilience of equity markets and the very marked recent liquidity in corporate bond trading, it is worth entertaining the notion - at least until the economists come around.

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Blossom Dearie (pictured above) died on February 7th, at 82 years old. Her rendition of 'A Fine Spring Morning' (1956), dating from before she was to depend on her kewpie doll persona, stands out as a masterpiece of vocal interpretation.

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The Triumph Of The Irrelevant

A certain notable amount of ink has been spilled this week concerning the possibility that Spanish banks, having apparently sidestepped a liquidity crisis, might be now entering one of actual solvency, as the now famous counter-cyclical generic provisions meet up with ballooning loan default rates. Thought to be be less probably the case by El País than by Cotizalia, we (despite the vacuum that develops in our solar plexus every time we look at a bank's stock chart) do not feel either competent or sufficiently informed to comment. On the other hand, this writer cannot help but notice the agility with which minister of industry, Miguel Sebastián, has made political use of the country's banking woes to steal the protagonist's role in the crisis from economy minister, Pedro Solbes.

Despite less than complete rhetorical support from the prime minister and outright hostility from the governor of the Banco de España, Sr. Sebastián has insisted on the populist tack of accusing the financial institutions of impeding the progress and well-being of the nation by refusing to lend money to citizens and small business in their time of need. The very strong indications that he had no clue when he assumed his current post a 10 months ago are now being confirmed. The difference is that then he had no influence whatsoever and, now, one cannot turn on the news without finding his mug plastered all over the screen.

Last April, attempting to kill not two, but three birds with one stone, Sebastián had the temerity to suggest that Spain would fight its way out of this mild economic malaise, diminish its dependence on overpriced petroleum and transform its economy (not to mention save the planet) through government energy conservation grants. Specifically, these were to be directed towards the heat insulation of the country's stock of buildings (read - Ontario, 1980) with the added bonus of mailing to each and every Spanish household, free of charge, two low consumption light bulbs. Thus is one led out from the Valley of Death.

Of course, expectations concerning his fitness for the job were not all that high to begin with - having achieved his ministerial status as a reward for volunteering for the suicide mission of being PSOE mayoral candidate in the most recent Madrid municipal elections. His other appropriate life skills mostly centre on being able (accompanied, and probably overshadowed, by his brother) to handily maneuvre himself along that seamless continuum which stretches from academia to actual electoral politics, passing through stages such as advisor, lobbyist, hack and bagman in the process. But back to the banks and cajas.

Cueing his demagoguery on the finely-tuned (as we mentioned last week) 'profitability' of the banking sector, he is threatening the industry with legislation if they do not open the credit taps and start lending to the living dead left ambling aimlessly about the half finished streets. Given that he must know (being an economist) that the fastest route to ruin for a bookie is to extend ever more credit to a punter that's lost his mojo - especially at a time when mojo itself is at a premium, we can only wonder exactly what political goals are actually motivating Sebastián's rantings. But didn't Zapatero say that he wasn't going to repeat?

Given the general paucity of coherent ideas as to what is actually to be done here (other than dish out a few billion to Spanish municipalities so as to provide a couple of months respite to some of the unemployed), one would think that the opposition PP would be basking in glory. But no. Recent polls show them further away from the PSOE in terms of public esteem than during the last election. Then again, they have bigger fish than mere popularity, or even nation-saving, to fry. Unable to decide if they are representatives of Ayatollah Rouco Varela or actual willing participants in a modern democracy, the PP has been reduced to infighting focussed on the repugnant trench warfare politics of Comunidad (not city) de Madrid president (and pretendress to the PP crown), Esperanza Aguirre. Those wishing to keep up-to-date on this ongoing melodrama could do much worse than read what Graeme, last surviving member of the Internationals, has to say. His blog is entitled South of Watford.

The photo at the top shows Ms. Aguirre accompanied, on the left, by another PP'er that doesn't get how the game works, Ángel Acebes. Sulking on the right is her arch-enemy, PP City of Madrid mayor Alberto Ruíz Gallardón. Now he would be an interesting option at the head of the national list in three years time.

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How To Sell A House

An anonymous comment to the next-to-last post, made in Spanish, relayed some housing market information interesting to those who would like to know what it takes to move a residential property in Spain at this moment. We translate (hoping that he or she might have an idea how many units were involved):

Officially, house prices in Spain have dropped 5%. In the meantime, the financial institution in which I work (and I imagine the rest of the banks) has been offering real estate, recently taken back from promotors in lieu of loan repayment or foreclosure, out the back door to its employees at discounts of 35% from original prices - with 100% financing. Almost all were sold within a month.

Also, they are offering foreclosed homes from individuals at substantial discounts, rather than selling them by auction, as would normally be the case.

We can only think that employees taking up the offer would be awarded the added extra of an implicit job guarantee.

Many thanks to Anonymous.

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