The timing could not have been worse: just as Spain faces its biggest constitutional crisis in over 40 years with Catalonia’s independence vote, another bank has begun to wobble.
Liberbank, Spain’s eighth largest lender, was spawned in 2011 from the shotgun marriage of three failed cajas (savings banks), Cajastur, Caja de Extremadura and Caja Cantabria. The new bank’s shares were sold to the public in May 2013 at an IPO price of €0.40. By April 2014, they were trading above €2, a massive 400% gain.
But by April 2015, the stock had started sinking. By May 2017, it was trading at around €1.20. Then came the collapse of Banco Popular in early June, which took many investors (but not WOLF STREET readers) by surprise, triggering a further crash in Liberbank’s stock as shareholders feared they would be next.
Liberbank, Spain’s eighth largest lender, was spawned in 2011 from the shotgun marriage of three failed cajas (savings banks), Cajastur, Caja de Extremadura and Caja Cantabria. The new bank’s shares were sold to the public in May 2013 at an IPO price of €0.40. By April 2014, they were trading above €2, a massive 400% gain.
But by April 2015, the stock had started sinking. By May 2017, it was trading at around €1.20. Then came the collapse of Banco Popular in early June, which took many investors (but not WOLF STREET readers) by surprise, triggering a further crash in Liberbank’s stock as shareholders feared they would be next.
https://wolfstreet.com/2017/09/10/next-spanish-bank-teeters-liderbank/
7 comments:
I think the ECB is still buying 60b/mo. creates an addl system capital requirement of 6b.
You're going to continue to see the EZ banks under pressure like this until the ECB stops...
Oooh gosh: yet another bank in trouble. Imagine my surprise. Commercial banks are inherently fragile for a very simple reason: they borrow short and lend long.
The only merit of that strategy is that it creates liquidity / money. But the state (government plus central bank) can create and spend limitless amounts of money anytime: whatever amount is needed to keep the economy at full employment (in the conventional sense of “full employment”). Moreover, governments and central banks have to create and spend money ANYWAY so as to deal with the erratic nature of aggregate demand if left to itself (exacerbated by erratic commercial bank behavior).
So why do we let commercial banks borrow short and lend long? There’s no good reason.
Ralph the only reason their banks continue to struggle is the ECB is creating (thru asset purchases) 60b/mo of additional nonrisk reserve assets in the system. EZ banks need a collective additional 6b/mo of capital to accommodate this ... which they struggle to raise or can't raise...
Economic cannabalism.
There is just nobody there who is qualified/competent Noah...
Same as over here they are either economists, political science or lawyers.... none have the correct training...
Matt, I don’t see why a flood of new “non risk reserve assets” (i.e. base money) is a big problem for banks. A bank which is faced with loads more deposits but has difficulty raising capital can always refuse to accept deposits – something which a few banks have actually been doing. That tends to drive down the interest paid to depositors: possibly into negative territory, at which point, accepting deposits becomes more profitable. Problem solved.
The problem facing this Spanish bank far as I can see is the classic one that haunts half the world’s banks half the time: their liabilities exceed their assets were an honest figure to be put on the assets.
According to Chaper one of Robert Peston’s book “How Do We Fix This Mess” half of the large UK banks in the 1990s were verging on insolvency. No way to run a railroad.
If somebody comes in and deposits a govt check they can't refuse it... they are the govts fiscal agents this is their main function... they would probably be in breach if they refused...
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