Audience outsourcing

We thought that it was about time that we contributed to the new, improved Iberosphere. Our piece, covering some aspects of the frankly odd credit market reaction to the Sunday's PP landslide municipal and regional election victory, begins (perhaps predictably) like this...

Absolutely true to recent form, a week ago Tuesday the two immediately upcoming Spanish government bond auctions which were to lead up to the weekend’s municipal and regional elections were put into journalistic – and might we add – speculative play by an article in one of the world’s news sources of reference.

...and, well, just gets better.

It can be read here.
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Editorial policy

Having tactfully failed to point out to our readership that the Spanish economic 'mystery' recently encountered here by our old favourite, Edward Hugh, may be attributable to his comparison of seasonally-adjusted sector data to nominal GDP, we now just cannot resist asking the following question...

Does anyone else find it odd that Hugh's latest piece, Italy is the elephant in the euro room, not Spain, did not manage to find itself posted in his death-of-Spain flagship blog, Spain Economy Watch?

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Spain kicks the bums out

Experience would have it that a normal electoral reaction to an economic crisis as deep as that being experienced by Spain would be to kick out incumbents of any stripe. What happened in today's municipal and partial regional votes, on the other hand, was that the PSOE was turfed almost everywhere, but the PP which is the main beneficiary has escaped unscathed in its own fiefdoms.

Two interesting datapoints are:

1). In the unredeemed old school socialist region of Extremadura, the PP is currently (with 90 percent counted) one seat short of an absolute majority;

2). Despite an unemployment rate three points above the national figure and a government embroiled in a variety of corruption scandals, the Valencia region PP has managed to amplify its majority with respect to 2007.

A living testimony to exactly how incredibly badly José Luis Rodríguez Zapatero's PSOE is perceived to have handled the country's economic situation.

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Radicalism rehashed

The parent organization behind recent anti-politician protests currently taking place in Spain, Democracia Real Ya, offers readers the opportunity to affirm their support for its manifesto by filling out a form at the bottom of the cited page. As of this moment, a grand total of 27,589 persons have done so. This figure, despite the phenomenal amount of media coverage that the acampada in the Puerta del Sol is receiving, calculates out to about zero-point-five percent of the country's 4,900,000 unemployed as reported in the last EPA survey.

It is not surprising that this 'revolution' has not escaped the same fate of irrelevance that its adherents claim to so discredit conventional politics. Their platform, rather than being the break with the past that it touts itself to be, is little more than a recycling of the utopian, lowest common denominator and subsidized lunch for everyone theme teleported directly from 1968 - with revealing token bits of modern detritus such as the insistence that the law prohibiting free downloads of copyrighted entertainment be rescinded.

Count this writer as being tremendously disappointed.

Kudos, on the other hand, to its organizers who have apparently done a good job of getting participants to behave in a civil manner.

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March Home Sales

A notable relapse in home sales in Spain following the boost given by January's demise of certain tax breaks.

























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Trichet Digs for the Evidence

Courtesy of Público, a photograph of ECB chief Jean-Claude Trichet personally stress testing the really sick caja de ahorros, CAM, from the standpoint of liquidity. This during a two day pow-wow in Madrid last week.







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Water for an Elephant

Rumours are swirling about that the regional government-owned company that supplies Madrid’s drinking water, Canal de Isabel II, will be taking a 7.5 percent stake in Bankia, the domestic banking giant being formed by Caja Madrid, Bancaja and several others, when they go public – scheduled for early summer. Ignoring for a moment the merit which the howls of ‘¡pucherazo!’ might have – it certainly would guarantee the continued control of the former caja by the Madrid PP – the manoeuvre does have its merits.

Recent reports have had it that Rodrigo Rato’s efforts to take his ward public have not been meeting with much enthusiasm on the part of the institutional investors which were being counted on to take about five percent of the IPO. Combining, however, Isabel II’s involvement and their stated intention to take 49 percent of themselves public in the near future we end up with a fairly elegant, albeit back door, solution to what is a near life and death matter not just for Bankia or Madrid, but – due to the sheer size of the bank - for Spain itself. The canal, income generator (last year’s profits were 115 million euros and they claim to have enough cash on hand to do the deal without recourse to credit markets) that it is, would remain appealing to international capital.

Addendum 1: Readers should note that the canal would take 7.5 percent in lieu of the 5 that private capital was being offered. Combining this with the recently-hatched common wisdom that Bankia will be floating 30 percent of itself rather than the 20 that was thought to be the case a few weeks ago, it would be reasonable to assume that Rato has dropped his intial price by 33 percent – and it’s still not flying. The goal was to come up with 3 billion euros of Basel III bulletproof capital.

Addendum 2: The ownership structure of this new bank has the amalgamated, bank-ized cajas owning, through Banco Financiero y de Ahorros, 70 percent of Bankia, a large (some, much, most or all, we don’t know) portion of the bad loans and repossessed real estate portfolios of its constituent parts, most of the industrial portfolios of these same, all of the nearly 5 billion euros of convertible preferreds sold to the Banco de España through the FROB and apparently... all (many, most, some) of the participaciones preferentes held by its retail customers. Notwithstanding Rodrigo Rato’s vigorous protests upon hearing BFA described in the press as a ‘bad bank’ intended to hold garbage assets, and his insistence that it would show a profit from day one, it should be noted that the preferentes – perpetual junk bonds that are mostly fobbed off, yielding about half what similar would in public markets, on deposit holders – universally are subject to the clause that states that interest will not be paid, or accrue, in any year that the issuer shows a loss.

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