Spain Crisis: Deloitte Reports €1bn Overstatement in BANKIA Savings & Loan Division

By John Ward

Spanish crisis moves up a gear as doubts grow about Madrid bailout resources

Sources in troubled Spanish bank Bankia confirmed to leading Spanish newspaper El Mundo yesterday that auditors Deloittes had discovered what they called ‘an inflated statement of liquidity’ for 2011 in the Caja division of the Group. Its shares dropped 6 percent on the news, its third straight day of heavy losses.

It might be more accurate to describe this discrepancy as ‘hyper-inflated’: the sum was really €3.5bn, but was reported as €4.5bn.

This can only add to the woes of the bank, which are considerable already. But it also adds to the suspicion (noted here and elsewhere since late 2010) about the veracity of reporting in the Spanish finance sector. The Slog’s view – based on local information – has always been that both the level of unsold property and the degree of arrears there are hugely understated.

Eyebrows were raised throughout Europe yesterday, for example, when Santander was abruptly ‘let off’ stress tests  purely by asserting that it had “done more than enough to reassure shareholders about capitalisation”. Generally speaking, investors in the sector seemed anything but calm: Mapfre SA (MAP) retreated 6.3 percent after reporting a 13 percent drop in first-quarter net income. Sacyr Vallehermoso SA (SYV), a property developer, slumped to the lowest price since at least October 1989. And the Bourse in Madrid dropped 2.8 percent to 6,812.7 in Madrid, its lowest since Oct. 2, 2003. The benchmark gauge has plunged 20 percent this year, the worst performance of 18 western European markets.

Equally disturbing is that the banking share sell-off yesterday involved large volumes – 44% above normal – mirroring the brief panic of Tuesday this week when heavy selling of Credit Agricole shares began on fears of its Greek bank collapsing in short order.

The Madrid Government is of course stepping in to buy 45% of Bankia, but how big is the hole going to be, and can Rajoy’s administration afford it? Bankia Group had 38 billion euros of real-estate assets at the end of 2011 and about half was classed as either “doubtful” or at risk of becoming so, according to the group’s annual report.

What we’ve been seeing in the last ten days in the EU as a whole is growing evidence that banking debt exposure to intrabank loan clients and ownership of ClubMed subsidiaries are vying with sovereign debt to be uppermost in the minds of nervous investors. And sources in an around Mario Draghi’s ECB continue to hint that the Italian Stallion is nearly out of oats when it comes to eurobank support.

This is partly because all his ‘money’ (loose and somewhat inaccurate term) is going into manipulation of the bond markets discreet purchases of excess bonds left lying around in places like, for example, Spain. The bond yields there on 10-year notes went above 6% again yesterday.

Spain is going to go bang pretty soon. At this rate, there won’t be any FiskalPakt applicants remaining solvent by the time the Fuhrerin gets it together. (And in Ireland, the tide is turning against FP ‘Yes’ campaigners).

Credit Agricole owns 20% of commercial bank Bankinter SA, Spain’s sixth largest bank. The bank has been hit hard by the Troika-aggravated recession in Spain, the shares having declined some 30 per cent over the last 12 months. Spain’s biggest seven banks need €68 billion of additional capital as a buffer against bad loans, and to meet regulatory requirements, according to RBS. All this is the sort of information that (a) demonstrates multivariate contagion and (b) why investors remain acutely aware of CreditAg’s very high level of exposure on several fronts.

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