Thursday, 6 May 2010

Me? Worried? About Spanish banks?

My bank in Spain has recently been unusually friendly and generous. Normally, they are happy to pay me 0% interest for the balances I keep. Now, as I was asking for a routine transfer to my other account in Germany, I got a phone call - and a bit of a surprise. How about, said the friendly branch manager, 4% if you keep it here? No? How about 4.5%? No? Did the Germans offer more? What can we do to keep it? Shall we meet in person? Wow. I am so friendly with my local branch, I have actually never met my branch manager. So this was starting to sound a bit funny. I don't keep balances the withdrawal of which will threaten the survival of this bank (or any other) single-handedly, so this particular, keen advisor got me worried... but checking a bit, it seems to be a general thing. Spanish banks are effectively finding it very hard to borrow in wholesale markets; private banking clients are pulling their money out bigtime, and putting it into stable core countries; and every bank and caja is now offering 4% term deposits, which is a pretty amazing rate given that Euribor is just a touch over 1%. Now Moody's has published a small note on contagion risk from the Greek crisis for Spanish and Portuguese banks. Given that they are rapidly becoming real estate investment trusts with a banking business attached, trying to sell millions of repossessed homes, there were plenty of fundamental problems to worry about. Now, we have something similar to a bank run in the bond issuance building up. Actually, while I have no particularly insight into how the balance sheets of Spanish banks look, I think I'd rather be safe than sorry, and send a bit more dough back home...

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