The Din

A couple of indications from yesterday that the racket has finally reached a fever pitch...

1). They've since conveniently re-edited the piece at the other end of this link (even changing writers and the time stamp) to make it a little more convincing, but the original - emanating from South Korea at 3:39 am - provided as evidence that gold was reacting to the eurozone debt crisis its previous day's 0.2% increase. Zero-point-two-percent!;

2). Looking over yesterday evening's front page of the Spain feed from news aggregator, NewsNow, no less than 28 of the 51 items present dealt in one way or another with Spain's presumed vulnerability;

3). The term 'PIIGS' was sighted on a couple of occasions.

Worth mentioning is that it was a perfect mediatic day for Banco Santander to tag 7.11€ - one cent below June's low - paying that buyer an 8.4 percent dividend, to which can be tacked on the 7.7 percent capital gain made by the moment of this writing. Apparently, we weren't alone in our thinking. Yesterday's volume was twice the three-month average.

But even more interesting might be a look at what might be incomplete about the picture being painted of coming Spanish debt difficulties.

The general consensus seems to be that the Spanish banking system may run into difficulties rolling over its maturing debt in 2011, and that the country's government will be in no position to help out. Central to the argument is the precarious state of many cajas de ahorros. But aren't we forgetting something?

The weakest members of that sector, which comprises about one half of the nation's banking assets, are currently being reconstituted (albeit slowly as the principals fight over the division of power, surely) as banks, either directly or under the IPS superstructure, allowing them to tap the previously forbidden equity markets rather than being restricted to debt and deposit funding.

Proceeding on the basis of the assumption that La Caixa, representing 21 percent of all cajas assets would not have rollover problems were it not for reputational contagion, and that another 8 percent suffer the same fate, we can make the argument that the refunding problem is confined to about 70 percent of these institutions. Enter Banco Júpiter.

This IPS, composed of six foundering to one degree or another savings banks, owns - primarily due to the participation of Caja Madrid and Bancaja - 29 percent of the sector's activos. That's the Spanish word for assets and they total in this case, placing it firmly behind BBVA as Spain's third-largest bank, 337 billion euros. We can now try to imagine the effect of an IPO of this domestic giant on the financial sector's debt landscape.

Thinking that Júpiter might have to roll over (just fishing here) 12 billion euros of debt and that they might be able to dream of a market value of 20 billion euros and that they might possibly float 30 percent to ensure themselves a spot on the Ibex 35 with all the institutional demand that creates and, bingo, their renewal requirements are cut in half. The end result, without including sure IPO's from smaller entities, is that - with contagion no longer an issue - 60 percent of the caja universe, including all those systemically important, has dodged the rollover bullet.

Readers will want to do their own homework before making a decision, but if the issue behind the recent spike in Spanish government debt yields is in fact the financial state of the cajas, then today's 5.4 percent being paid to buyers of the 10-year looks almost as big a gift as the Santander dividend.

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