Spanish bank bailout unlikely to succeed

June 8, 2012 18 Comments

It has been abundantly clear that Spain would need a bailout for its sick banking system, and rumours have emerged that this could happen as early as this weekend. I doubt that the details of a plan will be agreed so soon as an independent stress test of the Spanish banking system is still being carried out by Oliver Wyman/Berger (results due June 18th). Much more likely, EZ leaders will once again to plan to make a plan to make a plan to bail out the Spanish banking system. What are EZ policymakers trying to achieve with a Spanish bail bailout, and can they succeed? Read more of this post

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Remember Spain?

July 18, 2011 1 Comment

Until two weeks ago all eyes were on Spain as the country that, if it required a bailout, threatened to pull the eurozone apart at the seams. Events seem to have leap-frogged Spain and moved straight to Italy as the latter rushed to force an austerity programme through parliament last week. Now that the Italian austerity budget has been passed and Italian finance minister Giulio Tremonti’s position in the government seems more stable, investors are likely to focus on Spain as a potential flash point once again.

Are investors right to worry about Spain? Spain is unique among the PIGS (Portugal, Ireland, Greece and Spain) in that it has a liquidity problem and is not (yet) insolvent. If Spanish debt is shunned by investors, however, the country could quickly become insolvent, the repercussions of which for the rest of the eurozone would be severe.

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Voluntary bond buybacks to the rescue?

July 2, 2011 1 Comment

On Friday, the board of the Institute of International Finance (IIF) suggested its membership of over 400 of the world’s largest banks will consider Greek government bond buybacks alongside the French bank proposal for a voluntary Greek debt rollover. Will this help return Greece to solvency?

I explained why the French bank proposal was likely to fall short of targets in a post last week. If we assume markets are efficient, a voluntary bond buyback programme is also unlikely to return Greece to solvency.

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French bank plan: ce n’est pas une magic bullet

June 29, 2011 5 Comments

The details of the French Banking Federation (FBF)’s proposal for a voluntary Greek debt rollover are out, but the plan is still being discussed by banking federations across the euro zone. According to the FBF, the plan’s purpose is two-fold:

Further to our earlier discussions, we understand that it is now critical (i) to structure a voluntary mechanism allowing Greece to reach €30bn of government financing from private investors by July 1, 2014, and (ii) to prevent credit event on Greece CDS.

The debate on what exactly constitutes a credit event has been raging for weeks and ultimately seems to be a question of semantics. Let’s pretend the credit ratings agencies will go along with the French proposal and will agree not to give Greece a “D” rating. Is this plan the magic bullet needed to return Greece to solvency? Even under the rosiest of assumptions, I highly doubt it.

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