Friday, May 25, 2012

Without ultra transparency, 20 billion euros from Spanish government is not enough for Bankia

The Telegraph reports that Bankia's management is going to ask for more than 15 billion euros from the Spanish government (money that in a modern banking system is completely unnecessary for the government to give the bank).

Without Bania providing ultra transparency, even if management asks for 20 billion euros, there is no reason for market participants to believe that this is enough.

The lesson from Ireland is:  without ultra transparency, the losses at the banks are always significantly greater than the government or bank management acknowledges.

Spanish lender Bankia will reportedly ask the state for more than €15bn to bail it out when its new management team presents a restructuring plan on Friday.... 
Bankia, partially nationalised by the government earlier this month, is the weak spot in Spain's fragile banking system where loan losses stemming from a 2008 property crash threaten to push the country into seeking international assistance.
A second lesson from Ireland is that losses from a real estate bubble bursting hit every bank in the financial system, not just one.

 Again, in the absence of ultra transparency, there is no reason to believe that Bankia's real estate loan book is not a model for the performance of the real estate loan books of every other Spanish bank.

The logic behind this statement is that lending is competitive.  The borrowers ask several banks for loans and choose the one that is least expensive.  Bankia did not underwrite 100% of the real estate loans.  Therefore, there must be other banks who had similar underwriting standards...
"The help needed to clean up the bank will be more than €15bn," a source, who spoke on condition of anonymity, told Reuters. 
Neither Bankia, the country's fourth-largest bank with 10pc of Spaniards' deposits, nor the government would comment on the matter. 
The government said on Wednesday that it would provide any capital outlined in the new management's recapitalization plan through the state-backed restructuring fund, the FROB.
 I wonder if Bankia needs more capital than the FROB has?

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