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Monday, June 11

Spanish Bailout: The Collection

A collection of Spanish bailout articles, new ones added to the bottom of the post. This post will be updated continuously.
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Bailout Lite? There's Really No Such Thing; €30 Billion Needed? It's Now €100 Billion; Contagion of Economic IdiocyMish’s
Then within six months, possibly as soon as the money is handed over, more problems will surface, more meetings will take place, and still more money will be stolen from Spanish taxpayers and handed over to the banks and bondholders.

Pressure Mounts on Spain to Request a BailoutWSJ
Good background article written before the bailout news

Bank of Spain inspectors question the viability of BMN Bank Group Mish’s
The BMN group is bankrupt and it is "virtually impossible" to pay back money to the Fund for Orderly Bank Restructuring (FROB). Clearly the alleged orderly restructuring process is not so orderly.

The Spanish Cross Of ForbearanceMark Grant / ZH
The real number, if you look at the Regional debt, the needed aid for the banks, the contagion at the already infected two major banks is somewhere around $400 billion which is not present in the EFSF; there is not enough “promises to pay” left in this fund.

Spain Blinks: Accepts €100 Billion Bailout Via EFSF/ESM; FROB to Receive the MoneyMish’s
Once again, this is the wrong approach. Bondholders should have been wiped out. Instead, Spanish taxpayers will be put on the hook for another hundred billion euros. If another hundred billion euros is all it takes, I will be amazed.

Spanish bank bailout unlikely to succeedeconomistmeg
Unfortunately, it is very unlikely to succeed in drawing a line under concerns about Spain’s solvency. In the absence of economic growth, a bailout for Spain’s banks will be followed by a bailout for the sovereign as well.

Here Are The Main Outstanding Items Following The Spanish BailoutZH
Where will the money come from? - Where will the money go? - What happens to Spanish sovereign debt? – Precedent - Market reaction

Welcome to Fantasy Island, I’m Your Host, Mr. RajoyTF Market Advisors
In the end, Europe is ultimately just going t have to print a lot of money, forgive a lot of debt, or find more ways to lend cheaply to the weak countries, but that might not bother the market for a period of time.

JPM Tries To Explain Why The Bailout Train In Spain Will Lead To Much More PainZH
JP Morgan: our banking analysts have suggested recapitalization needs may ultimately run to €150bn…The request for support has at least three negative consequences: It implies some degree of subordination of other holders of Spanish sovereign debt. It provides a clear demonstration of the limits of the ability of the sovereign to raise funds on its behalf. And it crystallizes banking losses accruing to the State which it had hoped to avoid.

‘The Eurogroup supports the efforts of the Spanish authorities…’alphaville / FT
Just the Eurogroup statement

Spain Seeks $125 Billion Bailout as Bank Crisis WorsensBB

Why didn’t Europe bail out Spain’s banks directly?Felix Salmon / Reuters
…it’s unclear how much of the money is going to come from the ESM rather than the EFSF. That might seem like a niggardly distinction, but it’s an important one: the ESM has preferred-creditor status, which means that it’s senior to anybody buying Spanish sovereign bonds.

Spanish Bank Rescue: Will the Treatment Make the Patient Worse?naked capitalism
The endless stopgap measures have kept the Eurozone limping through its sovereign debt/banking crisis far longer than I thought possible. But the seeming success of bare minimum moves may well have conditioned the authorities to continue on that path. If so, it will prove to be their undoing.

Spain (finally) requests assistance for its banksKiron Sarkar / The Big Picture
This is a positive first step, but there are far more (serious) hurdles to deal with eg EZ wide deposit insurance, EZ banking union, far too small EFSF/ESM (will need more funds from EZ countries, which is unlikely – the other alternative is to grant the ESM a banking licence which, in my humble opinion, is more likely) etc, etc. Finally, will this be it for Spain – unfortunately, I very much doubt it. Spanish banks will require more funding and, most likely, Spain itself;

The Subordination in Spain Will Cause PainBruce Krasting
If the Spanish bank bailout deal ends up subordinating existing bondholders, it will create a whole new wrinkle to worry about. Portfolio managers who hold senior bank bonds of other EU banks will crap in their pants.

No bail-in, Spain?alphaville / FT
The whole reason we’ve got to this point is because of three years of consistent, bipartisan impotence and a culture of denial on the part of Spanish governments towards the cajas. The cajas are intensely political creatures. IMF/ EU oversight of these lenders, including the “horizontal structural reforms of the domestic financial sector” mentioned by the Eurogroup, means that a pretty big patronage system is about to be confronted by outsiders. How many of the cajas are non-viable? Should regional government ties to cajas be monitored?

The paid-in Spainalphaville / FT
So who’s backstopping the eurozone loans in the first place? To a certain extent —
Spain… But surely both this and (possibly) the EFSF guarantee thing show that the lines between banks, sovereign, and bailout fund remain seriously smudged. That ultimately leaves us with the question of how much longer Spain does have market access, even with this operation to separate recap funds for its banks.

Details Emerge About Spain's Cramming Down "Bailout" LoanZH
the ESM/EFSF funded bailout loan, whose use of proceeds will go to fund the FROB, not one which will rank pari passu with the FROB, will have "terms better than market" - always a code word for priming and cramdown of other debt classes.

German Opposition Threatens To Scuttle ESM, And Spanish Bailout, RatificationZH
First, we learned that
Ireland, as speculated, will demand a comparable retroactive bailout renegotiation, an act which also puts the Greek elections a week from today in play. Then, we got definitive confirmation that the Spanish loan, coming at ~3% or half Spanish GGBs, is a priming loan, subordinating existing creditors. Finally, we learn that the ESM - the bailout mechanism at the heart of all current and future European bailout plans, and which still has not been ratified by Germany, is in danger of being scuttled by none other than the German opposition.

Spain finally acts: now can BBVA, Santander manage without help?Saxo Bank
Overall this should be regarded as good news, although it could potentially trigger an even worse scenario, in that Spain might have to come back for more money later on. This can probably only be avoided, at least in the case of the banking sector, if the two Spanish multinational banks - Banco Santander and BBVA - can manage without capital from the Spanish government.

Spanish Bond Subordination: Some Possibilities AnalyzedTF Market Advisors
How much is actually borrowed remains a question. Who will do the lending also remains an open question, as ESM is mentioned yet for any immediate needs it will have to be EFSF. There is a range of possible ways for the deal to be structured, some resulting in significant subordination, and some not having much impact on holders of existing Spanish Government bonds (SPGB’s).

Spain: Nothing and Everything. Details Examined TF Market Advisors
On a standalone basis, the deal announced yesterday does relatively little for Europe… The plan, under the most positive interpretations, is reasonably meaningful to Spain, and under the worst execution, may do virtually nothing even in Spain. The key is whether there has been a shift in attitude in Europe. Is this different than prior plans and is this only the first of many steps?

The EuroTARP ComethKrugman / NYT
So the whole thing at best buys time — just like the ECB’s lending program from last fall. What will
Europe do with that time? If past behavior is any indication, the answer is, nothing.

Rajoy Proclaims "Victory", Says It's Not a Bailout "It's a Credit Line"; Existing Bondholders SubordinatedMish’s
"Holders of the subordinated debt will probably have to accept losses". So who wants to hold that debt given what happened to Greece? It will be interesting to see if there is initial euphoria in the bond markets. Regardless, sooner or later (probably sooner), selling pressure will eventually overtake any initial excitement of this alleged "victory".

The Spanish Bank Bailout: A Complete Walk Thru From Deutsche BankZH

Spanish Bondholders May Rank Behind Official Loans After AidBB

EU's Spain bank rescue may bring only brief respiteReuters
Euro zone finance ministers rushed Spain into an EU-funded rescue for its debt-stricken banks to pre-empt the threat of a bank run if Greece's debt crisis flares again but any respite for Madrid and the euro may be short-lived.

Skeptical Spaniards pour scorn on Rajoy over rescueReuters
Confused and anxious Spaniards heaped scorn on Prime Minister Mariano Rajoy on Sunday for portraying a 100 billion euro European rescue of the country's zombie lenders as a triumph, expressing skepticism about whether the plan will work.

EU/Spain and China Spur Collective Sigh of ReliefMarc to Market

Spanish rescue pleases markets, but doubts remaineuobserver

Spanish bailout bluesMacroScope / Reuters

A few things to keep in mind…The Reformed Broker

The agreement on Spain’s bank – problem solved?bruegel

The problem of subordinationButtonwood’s / The Economist

In spite of the bailout of Spain's banks, periphery redenomination risks loomSober Look

Spain to receive rescue package from EUDanske Bank (pdf)

Four questions and a subordinationalphaville / FT

Spailout reactionalphaville / FT

The €249bn holealphaville / FT

China data/easing ARGHalphaville / FT

On the Spanish banking bailoutASA

Satyajit Das: The Spanish “Bailout”, Whoops – “Assistance”!naked capitalism

Spain and The Runaway Euro Bailout TrainEconMatters

BizDaily: Spain's bank rescueBBC (mp3)

Euro Panic: Will Spain’s €100 Billion ‘Fix’ Work?The Daily Capitalist

Do not adjust your television setOpen Europe

Goldman On The Spanish Bond Subordination: "It's Only 13% Of Existing Spanish Debt"ZH

How to save Spain’s banks – and the eurozoneMünchau / FT

Another Bank BailoutKrugman / NYT

The Implications of Spain's DealMarc to Market

No Relief for Spanish BondsMarketBeat / WSJ

SocGen Chimes In: "Will The Spanish Bank Bailout Immunise Spain? Probably Not"ZH

Spain’s bank bailout: Prime Minister Rajoy takes the creditEl Pais

Markets React Positively to Spanish Bank BailoutSarkar / The Big Picture

Europe's democracies must not subcontract their destiny to the BundesbankThe Telegraph
Europe has lit the fuse on an economic and financial bomb. The rescue package for Spain cannot plausibly be contained to €100bn once it begins, given the subordination of private creditors and collapse of global confidence in the governing structure of monetary union.

Please sir, may I have some more? Spain may be saying that soonSaxo Bank

Newedge: Spanish People May Regret This BailoutZH

The World Is Flat And Other Tales From SpainMark Grant / ZH

Spain's Real Debt To GDP Right Now: 146.6%ZH

So Much For The "Bailout"ZH

This is What One-Eighth Trillion Euros Buys YouSlope of Hope


Buy the rumor, sell the newsSober Look

"English Law; Negative Pledge" - How To Hedge A Spanish Bond ShortZH

EU Commission Confirms ESM Loan Will Have Senior Preferred Creditor StatusZH

Spain and The Runaway Euro Bailout TrainEconMatters / ZH

Syriza Takes Advantage Of Spanish Bailout To Boost Its Winning OddsZH

Europe Scrambling To Avoid Subordination ThreatZH

Spanish CDS Storms Above 600bpsZH

Schauble Wants ESM To Be Used Over EFSF For Spanish BailoutZH

Europe Brings Out The "Capital Controls" BazookaZH

The Spanish Bailout In ContextZH

Euro Crisis: Spanish Fly in the OintmentMarketBeat / WSJ

Spanish 10-Year Yield Surges After BailoutMarketBeat / WSJ

The IMF Report
Basel Core Principles for Effective Banking Supervision – IMF
IOSCO Objectives and Principles of Securities Regulation – IMF
Safety Net, Bank Resolution, and Crisis Management Framework – IMF
The Reform of Spanish Savings Banks Technical Notes – IMF
IAIS Insurance Core Principles: Detailed Assessment of Observance – IMF
Oversight and Supervision of Financial Market Infrastructures – IMF
Vulnerabilities of Private Sector Balance Sheets and Risks to the Financial Sector – IMF

Skeptics Galore and the Big PictureTF Market Advisors
It is actually very hard to find a positive article, yet most seem to take worst case scenarios and take that as the likely outcome… Should be a long week, but letting market direction dictate views which in turn dictate positions is likely to be dangerous, especially since lately the market seems worse than ever at pricing anything correctly in the short term.

One Sided Balance Sheet and SolvenquidityTF Market Advisors
I think we will see more activity, and for all the talk that you can’t solve a solvency issue with liquidity, you are right, but sadly a lender with virtually unlimited access to cheap money (since he prints it) can provide enough liquidity to address solvency for a long time. The end result is likely to be ugly, but that doesn’t mean the central bankers won’t try.

Relief at Spain Bailout Package Proves Short-LivedTIME

You Say Tomato, I Say Bailout: How Spain Agreed to Be RescuedTIME
Knowing how bailouts doomed the governments of other countries, Spain insists it has accepted a massive "loan" to recapitalize its banks. Others, however, are calling it as they see it

Yes a bailout but more debt for Spain as a resultThe Big Picture

Buy on the summit, sell on the communiquéThe World / FT
So why do it this way? It’s the old story of policy architecture not reflecting the realities of the world economy.

An "Emperor Has No Clothes" Moment: ESM Has Failed AlreadyMish’s
Rather than calm the bond markets, Rajoy's alleged "victory" is going to strengthen the selloff. The ESM concept has already failed. Ironically, the ESM has not even been officially launched!

Just buying time?alphaville / FT

And at the beginning of the 14th week…alphaville / FT
ECB data published on Monday showed that it once again resisted intervening in government bond markets last week, taking its non-interventionist run to 13 weeks. But did all that change at around
noon today?

An ESM subordination… save?alphaville / FT
It will take time for states to ratify the ESM. So long as Spain borrows even a tiny bit from the EFSF, its subsequent ESM loans would not be senior, the theory might go.

The day according to CDSalphaville / FT
But yes, there is the question whether any bonds out have particular clauses whereby they could get accelerated if the ESM funds were somehow senior, and/or Finland doesn’t take one for the team (again) and demands collateral, etc. These things have a long-shot chance of triggering an event.

Spain’s bailout bought just 4 hours and 40 minutes of calmWonkblog / WP
In the past, every time European leaders have huddled together and announced a plan to douse the latest fire in Europe, the financial markets have usually been placated for a brief while — say, a few weeks or months.

Finland Trying to Dictate Terms of Spanish Bank Bailout: “No Funds to Bad Banks”naked capitalism
Earth to Finland, when you set up a good bank/bad bank structure, you ALSO need to fund the bad bank…the good bank/bad bank structure that generally gets the highest marks, the program in Sweden in the early 1990s, gave the asset manager the authority to extend more credit. In other words, when the asset manager determined loans in the “bad bank” were actually good loans, they could keep the borrower alive.

Could Spain’s bank bailout trigger its CDS?Felix Salmon / Reuters
In other words, the subordination matters; whether or not the subordination constitutes a credit event under ISDA rules, not so much. As the EFSF and ESM continue to disburse money to the European periphery, that’s the thing to concentrate on most

A Bigger Bailout AwaitsTim Duy’s Fed Watch
…as of roughly 9am on the West Coast, Spain's gamble has failed.  And that pushes Spain once step closer to a real bailout of sovereign debt, and the mess - private sector involvement, Troika monitoring, etc - that comes with it.

And Now, Spanish CDSDealbreaker

EU monitors heading to Madrid, despite 'Men in Black' claimseuobserver
Earlier that day, his spokesman said it was not important what the supervision is called - "troika ... men in black ... quartet" - but that Spain's banking reform will be under scrutiny in return for receiving the up to €100 billion loan from its eurozone partners.

Law of diminishing returnsMacroScope / Reuters
The first euro zone bailout, of Greece, bought a few months of respite, the next ones bought weeks, latterly it was days. Now … hours.

Stealth austerity coming to Spain?MacroBusiness
So, although, in Mariano Rajoy’s own words, there aren’t any additional requirements on the state due to this loan, the reality looks to be quite different. I hesitate to pass judgement given we haven’t yet seen any real detail of exactly what Spain is getting, but it would appear that this Spanish bank bailout has just pushed the sovereign closer to requiring full-blown assistance of its own.

Spain bank rescue glee morphs into markets routTIME
Euphoria over a lifeline of up to €100 billion ($125 billion) to rescue Spain's hurting banks morphed into a financial markets rout in a matter of hours Monday, as investors digested the still-undefined plan and became concerned the country may be unable to repay the new loans.

Another (potential) irk for Spanish bondholdersalphaville / FT
 Yes, (Moody’s) will downgrade
Spain to sub-investment grade if the assistance has ANY conditions. Which may have been another reason for all the talk of no conditions… which we know isn’t quite the case.

When EUR100 billion is not enough!Saxo Bank
As the weekend’s Spanish banking bailout fails to impress markets it is worth taking a step back to assess the situation.

Why the Bailout in Spain Won’t WorkDealBook / NYT
In the meantime, this piecemeal approach is bound to fail. Kicking the can down the road, to use again an overused phrase, at some point will fail — and that’s what may have just happened.

What a FROBbing Headache TF Market Advisors
We still await details of what the Spanish bailout is. So far the market has decided to take a negative view on how effective it will be. That may turn out to be the correct view, but many of the headlines seemed to ignore what few details we do have.

Bonos, bashedalphaville / FT
Two days into Spain’s declared intention to borrow maybe-senior official loans to recap its banks, and the 10-year Spanish bond yield has already breached a eurozone record

The Spanish 'Legal-Arbitrage' Bond Trade Is OnZH
being long non-local-law Spanish bonds against a short in a well-matched local-law Spanish bond offers significant upside

*Seniority in Spain — *good news* for bondholders?alphaville / FT
Barclays: …our conclusion is that of all the reasons to be pessimistic about the euro area crisis outlook, lower recovery values as a result of subordination following IMF/EU financing is not one of them… Debt buybacks such as the ECB’s Securities Market Programs (
SMP) are different.

*In the Picture: Spain’s ‘bailout-lite’The World / FT
Very good roundup and summary of the coverage

Bailout in Spain Leaves Taxpayers Liable for the Cost NYT

Why Spain’s Big Bank Bailout Is Really a Big Bust TIME
Spain's banks received a pledge for a huge rescue package from the European Union over the weekend. But some experts believe the bailout may end up causing more pain for the Spanish government in the long run.

Necessary But Not Sufficient John Mauldin / The Big Picture
Pardon my skepticism, but I see numerous problems. In the first place, €100 billion will not be enough.

Albert weighs in alphaville / FT
 SocGen: But the lesson from
Japan was that overly focusing on the banks as the problem is misguided and until or unless deeply deflationary policies are altered, the Spanish banks will be back for another bailout before too long.

Is Anyone Answering the Phones at the ECB? Tim Duy’s Fed Watch
of today, the Spanish bank bailout remains a phenomenal policy failure.  Spanish bond yields continue to rise, with the impact of the ECB's LTRO operations now effectively negated. Worse, this policy disaster extends now into Italy, with short term debt now taking a hit… Honestly, I find it incomprehensible to believe that the ECB will not soon come to the aid of Spain and Italy with additional bond purchases

The Eurofiscal Corruption Contest – The Spanish entry. Golem XIV
Rato, Rajoy, Caruana and  saw no evil, heard no evil and spoke no evil. Together, however, they profited personally from destroying the lives of their countrymen and women. That, to my mind, is evil.

The Genius of Mutual Indebtedness The Big Picture
Nigel Farage on Spain’s bailout

How Spain Hustled EuropeThe Reformed Broker
LPL Financial's chief strategist Jeffrey Kleintop has a piece out about the $125 billion Spanish bailout and, more specifically, about how Spain was able to manhandle the bureaucrats in Brussels...

How Germans Botched the Spanish Bank BailoutView / BB
The tension between the two parts is obvious. There’s no alternative but to manage it. Union where necessary, sovereignty where possible. It’s
Germany’s least-cost choice, and that’s what Merkel should be telling her voters.

Moody’s cuts Spain to one notch above junk alphaville / FT

Moody’s downgrades Spain to to Baa3, may downgrade furtherZH

Egan Who Just Gave Spain The Triple HooksZH
…downgrading the country from B to CCC+, negative outlook. As a reminder, the Uganda credit rating is B: it sure is no Spain.

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