Monday, December 27, 2010

Why mortgages might be Spain’s next headache

Are mortgages the next headache for Spanish banks? Regulators think the country’s 630 billion euro home loan market can survive the slump relatively unscathed, just as in the last real estate crisis of 1992-1993. Spanish banks’ biggest problem is bad loans made to real estate developers. But it would be optimistic to assume that mortgages will emerge unscathed.

In a recent presentation, the Bank of Spain pointed out that conditions in 1993 were tougher than they are now.
Unemployment hit 24 percent and interest rates soared to 13.9 percent, compared to 2.6 percent today. Even then, only 4 percent of mortgages went sour. And banks were able to sell repossessed properties after the bust without incurring losses.

There are grounds for optimism. Despite falling property prices, Spanish home loans are on average worth just 62 percent of the value of the property. These loans are recourse, making it harder for borrowers to walk away. Spanish families will often help overextended homeowners keep up their mortgage payments. This is reflected in banks’ data: the proportion of mortgages classed as non-performing has fallen to just 2.6 percent.

But today’s real estate bust is worse than in 1993. Spain started building 760,000 new homes in 2006 — almost four times as many as in 1992, even though the population has grown by just 13.5 percent. Most analysts predict Spanish house prices will fall 25 percent from the peak, twice the 12.8 percent drop to date. According to RR Acuna, a consultancy, Spain has 1.5 million unsold homes — about 6 percent of the total stock. These will act as a drag on prices, making it hard for banks to sell foreclosed homes at a profit. Moreover, households are more indebted than in 1993.

How bad could it get? If delinquencies on mortgages reached, say, twice the 1993 peak, banks would have 50 billion euros of troubled loans. Even then, this would be less of a headache than lenders’ 180 billion euros of potentially troubled exposure to construction and commercial real estate. Eventual losses would also be much smaller. Nevertheless, it’s hard to argue that mortgages will not be a problem.

Spain must act to capitalize banks

The last time

This is the last time I'm going to get caught up in the great Christmas shopping scam. The retailers have this perfect date of the 25th December which forces the vast majority of people to spend hundreds of pounds on Christmas gifts. And then, on the 26th or shortly after, prices drop through the floor, and we are bombarded with ads for 40 or 50% off. In our local shopping centre today, I was completely pissed off with seeing things that I had paid full price for, at 50% a few days later. The worse thing is, we know this is going to happen, and still most of us fall for it. Not me, not again next year anyway.....

Monday, December 20, 2010

More bloody snow

So, here we are, in the last few working days up to Christmas, and the whole bloody country seems to have ground to a halt again because of the snow.
I live near Gatwick and the news reports are full of stories of people stranded at the airports either trying to get away or trying to get home somewhere before Christmas. The news channels must be loving it - they can spend the whole day going live to helicopter shots over the M25 or Gatwick.
Also, we hear that retailers have seen their share prices fall, as people just haven't been able to get to the shops. One wonders what will happen to the boxing day sales if people haven't been able to get to the shops before Christmas day.
Of course, Christmas is the ultimate shopping scam anyway, in terms of forcing people to buy before the 25th, even though we know that prices will be lower on the 26th.
In economic news we hear from the CBI that they have scaled down their estimate for 1st quarter growth to an insipid 0.2%, with not much improvement through 2012. There also seems to be some expectation that interest rates will have to rise, to help curb inflation. Given that we are all going to be hit by higher VAT and other increases next year, that's hardly going to be welcome news. In terms of people with Spanish mortgages or other euro mortgages, there may be a small upside as the pound may strengthen with higher interest rates. Whatever happens, it looks like being a tough 2011.....

Sunday, December 19, 2010

Poor sales to non-residents in Spain

Amazing property sales figures for the last quarter show that the number of properties sold to non-residents was, wait for it, 490. Yes, 490, in the whole of Spain!
I would imagine that a few years ago there would have been some large agents that would have expected to sell 500 units in a quarter!
So it seems that, even with falling prices (supposedly) the foreign buyers are hardly falling over themselves to buy places in Spain.
Clearly everyone seems to have their own economic problems at home, and the outlook for Spain seems to be shaky at best.
Also, although the banks can be identified as being the cause of a lot of problems with their easy lending practices, the current best offer of 60% LTV is not really very enticing for non-cash buyers. You are going to need 40% deposit plus up to 15% to cover all the costs - about 55% of the total purchase price. It's not difficult to see why the sales are so low.

Explaining the Sub-prime mortgage mess

Thursday, December 2, 2010

How the Irish Bailout works

It is a slow day in a damp little Irish town. The rain is beating down and the streets are deserted. Times are tough, everybody is in debt and everybody lives on credit.
On this particular day a rich German tourist is driving through the town, stops at the local hotel and lays a €100 note onthe desk, telling the hotel owner he wants to inspect the rooms upstairs in order to pick one to spend the night. The owner gives him some keys and, as soon as the visitor has walked upstairs, the hotelier grabs the €100 note and runs next door to pay his debt to the butcher.The butcher takes the €100 note and runs down the street to repay his debt to the pig farmer.The pig farmer takes the €100 note and heads off to pay his bill at the supplier of feed and fuel.The guy at the Farmers' Co-op takes the €100 note and runs to pay his drinks bill at the pub.The publican slips the money along to the local prostitute drinking at the bar, who has also been facing hard times and has had to offer him "services" on credit.The hooker then rushes to the hotel and pays off her room bill to the hotel owner with the €100 note.The hotel proprietor then places the €100 note back on thecounter so the rich traveller will not suspect anything.
At that moment the traveller comes down the stairs, picks up the €100 note, states that the rooms are not satisfactory, pockets the money and leaves town.No one produced anything. No one earned anything. However, the whole town is now out of debt and looking to the future with a lot more optimism.
And that,ladies and gentlemen, is how the bailout package works.

Wednesday, December 1, 2010

Spains banks seen as weak links

(Reuters) - Mounting bad loans, competition for funds and exposure to wobbly Portugal make Spain's banks a potential liability as the country fights to avoid an Ireland-style bailout.
A burst property bubble also weighs on the sector, but the immediate worry is over the spring of next year when both the banks and the government will be in the market for a combined 50 billion euros ($66 billion) of funding.
"Problems may well arise when banks need to turn over debt at the same time as the government if confidence remains low," said Javier Bernat, analyst at Caja Madrid.
A wave of consolidation and conservative rules have supported the banks so far, but after Ireland accepted an 85 billion euro aid package, investors are turning their eyes to Portugal and Spain.
In the larger economy, mid-size banks such as Banco Sabadell
and Banco Pastor are seen as potentially the most vulnerable.
They were frozen out of European interbank markets earlier this year, and are not as diversified as global giants BBVA and Santander.
Capital requirements for Spanish banks have traditionally been more stringent than in other countries and the average core Tier 1 capital of the sector was 7.7 percent under a crisis scenario in July's Europe-wide stress tests.
But the bar has been raised for all banks since then, as new capital rules have been agreed, leaving Spanish banks looking less well capitalized than many international rivals.
The weakest link in Spain's banking system are regionally focused savings banks -- who had an average core Tier 1 capital ratio of only 5.5 percent in the stress tests. They have already gone through a forced consolidation process that has cost the government 15 billion euros in credit lines.
Shares in Santander, the euro zone's biggest bank, sagged 3 percent to an 18-month low on Tuesday as worries about the sector grew.
Spain's economy is larger than those of fellow euro zone peripheral countries Ireland, Greece and Portugal combined, and if it spirals into a debt crisis despite progress cutting its budget deficit, a bailout would strain the European Union's safety net.
With the economy stagnant and spending cuts landing, market jitters over possible bank funding problems have pushed up financing costs for Spain to euro-zone lifetime highs of about 5.4 percent for 10-year sovereign bonds.
Another source of concern is heavy exposure to Portugal, which is seen as the next euro zone trouble spot. Spanish banks had a $108 billion exposure to Portugal at the end of March, according to Bank of International Settlements data.

Tuesday, November 16, 2010

Is Eurozone heading for triple meltdown again ?

News stories and podcasts are very much focussed on happenings in Ireland and the reluctance of the Irish to accept an EU bailout except on their terms. In many of the stories, the subject of Greece often comes up, and we are reminded that that particular problem was very recent and still hasn't actually gone away. European bond markets are reacting badly to the news, which threatens to drag Portugal and Spain into the mire. The PIGS have long been identified as the EU's biggest problems, and it now seems likely that they could all be the receivers of some kind of bailout. Ireland could have a big knock on effect in the UK, as it seems that much of the debt of Irelands banks is held by UK institutions, so the debt malaise could spread.

Friday, November 12, 2010

Is Ireland heading for bailout ?

The pressure seems to be increasing on the Irish economy, amid signs that the country may be heading for a Greece style bailout, much to the chagrin of the Germans, who are frankly fed up with having to help the basket cases that they are lumped in with in the EU.
The Irish economy and people benefitted more than most from entry into the Euro, as house prices went through the roof. In Spain, it seemed that for every Brit buyer, there was an Irish buyer, quite extraordinary given the relative population sizes. Of course, lots of these Irish people that had taken equity out to buy in Spain and elsewhere, are now in negative equity at home, or having problems making payments, so there will be a likely knock-on effect on their holiday homes and investments in Spain, with Spanish mortgage payments likely being secondary in importance to the Irish mortgage for their main home. Given that the Spanish economy has stalled again, it's a double whammy that one of the nations that was so enthusiatic about investing in Spain is in so much shit too.....

Thursday, November 11, 2010

Spanish Recovery stalls

Spain's fledging economic recovery came to a stop in the third quarter amid tough austerity measures, official data showed Thursday, hindering government efforts to slash the soaring jobless rate.
Gross domestic product showed zero growth in the three months to September 30 from the previous quarter, the National Statistics Institute (INE) said in a preliminary estimate.
It followed growth of 0.2 percent in the second quarter and 0.1 percent in the first when Spain emerged from one of its worst recessions for decades.
Spain, a member of the eurozone, has the fifth-biggest economy in the European Union.
A recession is defined as two quarters running of shrinking growth from output in the immediately previous quarter, so a month of zero growth is a cause of concern for policymakers.
The data also comes at a time of renewed concern in eurozone bond markets about high debt and low growth in weaker eurozone members Ireland and Portugal, following the Greek debt crisis earlier this year.
On occasions this year, Spanish bonds have also been affected by strains on the bond market where there is concern that austerity needed to control overspending could tip some countries back into recession, cutting tax revenues and adding to their problems in controlling budgets.
On a 12-month comparison, Spanish gross domestic product expanded by 0.2 percent after seven months running of declines by this long-term measure.
The government said the flat growth would impede its battle to slash the unemployment rate of more than 20 percent, the highest in the 16-nation euro zone.
"It is not possible to create employment" with zero growth, Employment Minister Valeriano Gomez said.
"Spain still needs to grow by 2.0 percent to create employment," he told Cadena Ser radio.
He forecast that employment would pick up in the second half of 2011, with an additional 40,000 and 50,000 jobs created in the year.
The INE said the latest figure reflects lower national consumption compared with previous quarters.
The figures confirmed estimates by the Bank of Spain last week, which forecast "a weakening of economic activity, of a transitory nature, due in large part to the depletion of some expansive factors."
"These include the impact on national demand of the budget austerity measures adopted in May," it added.
The government has suspended dozens of road and rail projects and cut civil servants' wages as part of deep spending cuts aimed at reining in the massive public deficit.
It has forecast the Spanish economy will shrink by 0.3 percent this year, following a fall of 3.7 percent in 2009.
In May it lowered its growth forecast for next year to 1.3 percent from 1.8 percent due to the impact of the tough new austerity measures.
The government aims to bring the public deficit down to 6.0 percent of GDP in 2011 and to the eurozone limit of three percent in 2013. The deficit hit 11.1 percent of GDP last year, the third highest in the eurozone after Greece and Ireland.
The measures were introduced at a time of rising fears that Spain and other southern members of the eurozone could follow Greece into a financial crisis.
The Spanish economy slumped into recession in 2008 as the bubble burst on a decade-long property boom and amid the global financial meltdown.
The INE is to release definitive figures for the third quarter on November 17.

Wednesday, November 10, 2010

An interesting house to rent

We just went house hunting at the weekend, looking for somewhere to rent. Our landlord in the UK has told us that he intends to try and sell our current abode when our contract expires, in August 2011. Yes that's right, August next year. In true style then, my GLW (good lady wife) has already started looking....
And what happens when you look for a house? - lo and behold, you find somewhere that you really like!
Anyway, the interesting thing about this house, is that it was owned by a builder that went bust, and is in major hock with the bank. So the bank have come in and finished the project, and are left with a property that "owes" them more money than they could comfortably recover with a sale.
So, rather than liquidate the loss, the bank (we don't know which one) has decided to become a landlord for a few years - I guess they can at least get some income and hold an "asset". So, we may have a bank as a landlord for a couple of years, as long as they drop the asking price enough that we can afford it - nice place though.........

Thursday, November 4, 2010

More BTL mortgages available again in UK

A recent financial adviser confidence tracker report suggests that availability of buy to let mortgages in UK has improved.
As many as 43% of surveyed mortgage brokers said that the number of available deals increased in Q3 2010. Another 38% said they have not noticed any changes in the number of mortgage deals for property investors, and only 19% of respondents said the number of available loans fell.
The survey also found that 58% of mortgage brokers expect the situation on the market not to change significantly in Q4, whereas 35% hope it will get even better. The remaining 7% think the availability of buy to let mortgages will decline.
The report comments that the market has significantly improved in the past months, however, it still is not back at its pre-crisis level. Many professional buy to let landlords still find it hard to access loans.

Wednesday, November 3, 2010

Unemployment in Spain rises again

Unemployment in Spain, which has Europe’s highest jobless rate, rose for the third month in October as the economy struggles to recover from an almost two-year recession.
The number of people registering for unemployment benefits rose by 68,213, or 1.7 percent, from September to 4.09 million, the
Labor Ministry in Madrid said in an e-mailed statement today.
Given that the construction industry in Spain looks to be well and truly screwed, at least for a few years, it's quite difficult to see where they are going to create many new jobs from. There aren't that many industries in Spain that have a true international appeal or weight, aside from a small number of high profile ones - Seat, Ferovial, perhaps.
And with this level of unemployment comes a double whammy on the eceonomy - higher benefit payments for all those people, and less spending in the economy, with loans and mortgages under increasing pressure.
unemployment rate, double the European average, fell in the third quarter to 19.8 percent, even as Prime Minister Jose Luis Rodriguez Zapatero said the number should be viewed with “prudence.” The economic recovery probably slowed from July to September, Bank of Spain Governor Miguel Angel Fernandez Ordonez said on Oct. 5, as the government tries to slash the euro region’s third-largest budget deficit with the deepest austerity measures in at least three decades.

Tuesday, November 2, 2010

Back in austerity Britain.....

....I seem to have acquired another job to go with the, admittedly quiet, overseas mortgage broking, and the current day job in the music business. I am getting involved in an online gambling business to help out the owner, who is an old mate. So in a time of rising unemployment I could be working 3 jobs "to make the rent", as they say in the US. When things start looking up and the mortgage business starts flowing again I could be a very busy boy. Bring it on I say.

Sunny Spain

Just back from an enjoyable week in Southern Spain, where the fine autumn weather with temperature in the mid 20's felt a world apart from miserable grey Britain.

There still seems to be an awful lot of half finished apartments blocks, and the buzz that existed 3-4 years ago has well and truly gone. The building sites look even worse now the scaffolding and machinery has gone, and I can't see that they are coming back any time soon.

Part of the problem affecting sentiment in Spain still seems to be a complete mistrust of the banks and any official figures. The government says prices are going up, and the largest valuation company says they are going down. And the banks seem to be under suspicion of completely underdeclaring the true value of the repossessed properties on their books. We have friends with an apartment in Calahonda and the bank have completely stopped communicating with them, not chasing for money, not sending warning letters, or threats of repossession. They fully expect to lose the apartment, but in the meantime they are mortgage/rent free - they hav e no incentive to pay when the mortgage is higher than the purchase price would be for the apartment next door, it's an incredibly tricky situation.

Monday, July 19, 2010

Bank debt worse since 1995

Bad debt in Spain has reached its highest level since June 1995 with the number for May climbing to 5.707%. It means that the amount of doubtful credit increased by 476 million € in just a month.

Once again it is the Caja savings banks which carry most of the bad debt, according to the data published today by the Bank of Spain. They have had a bad debt level over 5% for the past 14 months.The total volume of doubtful credit at banks, savings banks and cooperatives is now 95.291 billion €.

The Bank of Spain considers credit as doubtful when an individual or a company goes three consecutive months without payment.According to the Spanish Chambers of Commerce, 85% of Pyme small businesses are ‘sweating’ to find finance. They say that the number of companies applying for grants is up, and many are finding it had to get paid by pubic bodies. As many as 85.4% said they had come across the problem in the second quarter of the year.

Air traffic controllers have denied that the high numbers of workers from Barcelona off sick on Sunday, and to a lesser extent again today, is an undercover strike. Delays have been seen as a result, most on flights to Barcelona, Alicante and the Baleares. An investigation has been ordered by the Minister for Development, José Blanco, but the controllers are adamant that all the sick leave is accredited and any delays are ‘normal and less than in other countries’

Telefónica has taken the first step to break its alliance with Portuguese Telecom. A firm of lawyers has been taken on to try to dissolve the alliance the Spanish company has with its Portuguese counterpart in the Brazilian company Vivo.Counterfeit Euros are still being produced, but on a lower scale than before. During the first six months of this year there was a 13% fall in the number of fake notes impounded by the authorities. Even so, over the first six months of the year a total 370,000 fake notes were taken out of circulation, according to the European Central Bank.Gas Natural Fenosa has won the tender to improve the energy efficiency in the Ministry of Industry building in Madrid. Savings of at least 10% are now expected in the ‘Cuzco complex’ building which is also home to some of the offices for the Ministry for the Economy and Hacienda.The President of the CEOE employers’ organization, Gerardo Díaz Ferrán, faces court after five employees of the Air Comet company are demanding their pay dating from October and November last year, when he was still the owner of the airline. The first case reaches court in Madrid on Wednesday next week.And finally,Filling your car tank with petrol or diesel will cost you about 10 € more than a year ago. Over the past 12 months diesel has risen in price by 19% and petrol by 13%.Read more:

Wednesday, July 14, 2010

Exchange rates report

Please find below the latest currency exchange report from our friends at Foremost Currency Group.


Over the past week we have seen a steady decline for the Sterling-Euro currency pairing. With the bearish sentiment expressed towards the pound, Euro prices fell 1.6% over the week to a low of 1.1928 from previous highs just pushing over 1.21. Sterling began to slip on Monday after a weaker than expected reading of the UK services sector highlighted the fragility of the country’s economic recovery and thus prompted investors to take their profits from the pound’s rally over the last few weeks. With an increase in the supply of sterling on the currency market, prices naturally began to fall.

With few news releases holding much impact for the currency pairing this week until Thursday, the ongoing situation for BP as well as the aforementioned profit booking eroded the previously seen sterling strength, although at a pace subdued by weak GDP growth figures in Europe.

Financial talk within the UK recently has focused on the possibility of a ‘double-dip’ recession and the impact it would have. Whilst the risk of Britain sinking back into a period of declining economic growth has grown in recent months, a 12-strong team of respected economists and business leaders on the Sky News Money Panel unanimously made the call that the the UK would avoid a double dip. They confidently and correctly asserted the Bank of England would make no monetary policy changes following the July interest rate meeting. The same was true of the ECB who held European interest rates at 1%.

Economists said that the BoE was walking a tightrope between nervousness over rising inflation and growing concern about the impact of last month’s austerity budget on the struggling economy.
“The stickiness of UK inflation remains a concern but ‘lower for longer’ is likely to remain the theme when it comes to interest rates,” said Stephen Boyle, head of economics at Royal Bank of Scotland. Inflation is expected to climb even higher after the government ramped up VAT to 20% from 17.5%, set for introduction in January 2011.

It was because of this inflationary pressure that we saw dissent from policymaker Andrew Sentance at June’s MPC meeting. Expect to see more rumour and unrest within the MPC over the course of the year as pressure on inflation continues.

Sterling has rallied in the past month in the wake of a general election in May and the new coalition government’s budget announcement, this rally has however now started to wain due the possible impact of tax rises and spending cuts on the overall economy.

The trends displayed this past week demonstrate the worth of staying up to date in order to maximise your currency purchase potential. By contacting your account executive here at the Foremost Currency Group for a free consultation, we can help you to optimise that purchase. For example, buying €200,000 this past week on Friday instead of Monday, would have meant a loss of over £2400. We can help you to avoid losses by giving you relevant economic information and opinion on trends within the currency market.

For the week starting 12th July, we see a whole host of data releases in the UK; GDP figures on Monday and the claimant count on Wednesday holding the most potential for placing pressure on sterling. Whilst in Europe, the German economic sentiment survey on Tuesday and inflation figures on Wednesday hold the most gravity.

For more information on how upcoming data releases may affect your currency, see the below for a concise round-up of volatile market moves or call in for consultation with your Account Manager here at the Foremost Currency Group. We keep abreast of key announcements from prominent government figures both here and in Europe, helping us to help you maximise your Sterling/Euro currency potential.

Last week saw another volatile week for the GBP/USD pairing, with a high on Thursday of 1.5225 and the low of 1.5090 that was hit on Monday, Wednesday and Friday respectively. Sterling edged up versus a broadly weaker dollar on Friday as the day progressed as signs of an improving global economic outlook supported higher-risk currencies.
Sterling hovered near a two-month high hit against the dollar on Thursday. It slipped to its lowest against the euro in 2-1/2 weeks as the single currency also benefited after Thursday's upbeat U.S. jobless claims data.
"Sterling has been benefiting from weakness in the dollar," said Adam Cole, global head of currency strategy at RBC, adding that investors' greater appetite for risk was putting selling pressure on the U.S. currency. A climb above 1.5224 hit on Thursday would mark the pound's strongest since early May.
In other Dollar related news, the U.S. pledged to monitor China’s “undervalued” yuan in the next three months for signs that Asia’s fastest-growing market is living up to its commitments to help rebalance the global economy.
China took a “significant step” last month when it ended its peg to the dollar and allowed markets to drive the currency higher. A report by the US Treasury department, initially due April 15, concluded that no major U.S. trading partner manipulated its currency and said it’s not yet clear whether China’s policy shift will correct the yuan’s undervaluation. The Treasury promised another review in October. You may think these developments may not directly effect the GBP/USD pairing, but are worth keeping tabs on as if we see a weakening dollar in any area, it is surely good news for those looking to purchase with Sterling.
This week, we don’t have a great deal of significant data releases of note from the USA, other than the release of the Fed Budget for June on Tuesday, which may effect the markets depending on its content, anticipation of which way this will swing is somewhat limited at present but it is broadly considered unlikely that we will see any major change. We will however be looking to see if the pound can sustain it's recent gains against the dollar, or whether we will see profit taking by investors, where they reverse their positions to tie up any gains they have made in the rise of the currency. We saw this happen in previous weeks for the GBP/EUR cross, and as a result, the pound lost nearly 2% in value against the single currency.
Looking at the broader picture, we are still sitting at almost a 6-month high against the Dollar, therefore locking in at these levels and capitalising on your own currency gains is certainly worth consideration if you have any upcoming requirements in the short to medium term future. By paying a deposit of up to 10%, you can fix your exchange rate at the current level for anything up to 2 years, giving you peace of mind about the fluctuating exchange rate.

FSA to ban fast-track and self-certified mortgages

Mortgage borrowers will find it takes longer to process their application and the self-employed could struggle to get a loan if proposals announced today by the Financial Services Authority are implemented.
The regulator has published a consultation paper which proposes requiring verification of borrower's income in every case to prevent over-inflation of income and mortgage fraud.
If implemented, this will prevent the "fast tracking" of mortgage applications – the granting of loans without requiring proof of income – a wide-spread practice among mortgage lenders.
David Hollingworth of mortgage broker London & Country says it could mean that rather than a mortgage being granted instantly – as often happens now providing the lender can find enough information about the borrower's credit history electronically – it could take up to three weeks for the borrower to find out if he or she qualifies for a desired loan.
The proposed move also means that those who have recently become self-employed have no hope of applying for a "self-certified mortgage".
These loans were initially designed to enable self-employed borrowers who had less that three years' of accounts to borrow loans without providing bank statements or tax returns to support their claimed level of earnings.
But over the past few years, as people have begun to struggle with the amounts of borrowing they have taken on, it has become apparent that the loans have been used by many borrowers who wanted to take out bigger loans than a lender would normally allow them.
The FSA has also acted against several mortgage brokers who have fraudulently increased the amount of money applied for in mortgage applications.
The consultation proposes imposing affordability tests for all mortgages, making lenders ultimately responsible for assessing a consumer's ability to pay, and preventing the use of interest-only loans to enable borrowers to cope with a mortgage they could not otherwise afford.
Although the self-certification mortgage has disappeared from the market during the credit crunch, the proposals will prevent lenders from reintroducing itonce confidence returns.
Hollingworth says the proposals are sensible: "The proposals are quite measured, but they will set a framework so when the market goes into recovery, we have something that contains the lenders a little bit. The lay man will hopefully regard this as common sense."
However the Building Societies Association said there was a risk the proposals could create "mortgage prisoners". Paul Broadhead, head of mortgage policy at the BSA, said: "To ensure borrowers are not adversely affected, it will be important that when the rules are implemented they provide clarity for lenders and are enforced consistently across the market.
"Interest-only mortgages are not inherently bad or high risk. However, it is important that borrowers with interest-only mortgages understand the importance of having a plan in place to repay their mortgage at the end of its term. The FSA needs to proceed with caution so as not to restrict the use of interest-only as a way of helping borrowers overcome repayment difficulties."
The proposals were drawn up following detailed analysis of past lending decisions, looking at the causes of arrears and repossession since 2005.
The FSA found that:
• 46% of households either had no money left, or had a shortfall after mortgage payments and living costs were deducted from their income;
• Almost half of new mortgages between 2007 and the first quarter of 2010 were provided without a customer having to verify their income;
• The share of interest-only mortgages has been increasing. At the peak of the market, over 30% of all mortgages were interest-only;
• Many consumers with no repayment vehicle count on future house price rises or uncertain life events to repay their mortgage and some have no plan at all;
• Borrowers with a credit-impaired history are particularly vulnerable.
Lesley Titcomb, FSA director responsible for the mortgage market, said: "There is a clear link between financial overstretch and mortgage arrears and repossessions, and we are determined to protect vulnerable consumers by making sure that everyone who takes on a mortgage can afford to pay it back.
"While it is clear the mortgage market has worked well for many, we need to build a strong new framework to protect mortgage customers and to ensure that the problems we have seen in the past do not happen again, particularly as the mortgage market recovers."
The FSA also wants to provide extra protection for vulnerable customers with a credit-impaired history.
Today's report includes the key findings from the FSA's review into arrears charges, which indicated significant variation in the level of arrears fees across the market.
The mortgage rules require arrears charges to be based on a reasonable estimate of the cost of the additional administration caused by the customer's arrears.
The FSA has stepped back from an idea initially raised in the mortgage market review discussion paper last year to set a maximum loan-to-value ratio on mortgages. Such a move would have signed the death knell for mortgages worth 100% of the property's price.

Spanish House Price Data - "Bonkers"

This article comes from our friends at Global Edge

Spanish overseas property portal, has published a new report which aims to provide a more accurate picture of the Spanish property market.The new report analyses the three most important sources of information, official data, data from valuation companies and property portal statistics.

Here are the highlights:

1. Property transaction figures are the most reliable and show a peak-to-trough decline of 56%. Transaction levels were lowest in the early part of 2009 and have since picked up, a little.

2. Official data from the Ministry of Housing (MVIV) publishes valuation data but not information about actual sale prices, even though it has the information. Publishing actual data would improve transparency in the market and lead to more property transactions says’s Martin Dell. It should stop pursuing a political agenda and behave more responsibly.

3. Official data shows a price drop of 11.2% over two years which is clearly ludicrousPortal data from likes of Idealista, Fotocasa, Facilisimo and Kyero record asking prices but as asking prices can differ significantly to the actual prices paid, they are not accurate and can appear to be “bonkers” says Dell. The most realistic figures are from, which show a peak-to-trough decline of 23.7%4. Valuation company data shows average declines of around 15%. This is not accurate either. It is worth noting that valuation companies are employed by banks, so have a vested interest in reporting higher prices.

It is difficult not to agree with Dell’s conclusion:“What the market needs is for the Spanish government to publish actual transaction prices of individual properties so that the 'hard facts' are available for further analysis. While this will not reveal the 'actual' price paid for the property in most cases - thanks to a cash element of many property transactions - it will level the playing field"."My own belief is that when property buyers are armed with better data, they make better buying decisions. When that data is lacking or incomplete, they either make sub-optimal decisions or they decide not to buy at all. This lack of data transparency, in my opinion, is a significant factor in the continued suppression of the Spanish property market”.

Eurozone Production Output grows for 3 months in a row

Industrial production in the 16 countries that use the euro increased for the third consecutive month in May.
Eurostat, the EU's statistics office, said production climbed by 0.9% from the previous month, the same as the increase seen in April.
However, economists had forecast a rise of 1.2%.
Eurozone manufacturers have benefited from the lower value of the euro, as this makes their goods cheaper in countries outside the bloc.
This has helped manufacturers play a key role in dragging the EU out of recession.

UK Unemployment falls

The number of people unemployed in the UK fell by 34,000 to 2.47m in the three months to May, official figures show.
Meanwhile, those claiming Jobseeker's Allowance fell in June by 20,800 to 1.46m, the Office for National Statistics (ONS) said.
That took the jobless rate to 7.8%, the lowest since January and below forecasts of about 7.9%.
The number of people in work rose by 160,000 in the three months to May, the biggest rise since August 2006.
However, the increase was due to a record 148,000 rise in the number of part-time workers, while full-time workers increased by just 12,000.
The ONS said the percentage of workers in part-time jobs was 27%, its highest since records began in 1992.
The figures will raise hopes that the economic recovery is gaining momentum. Although some experts think unemployment could start rising again by the end of next year. 'Stable' market
Andrew Sentance, a member of the Bank of England's Monetary Policy Committee, said in a speech on Tuesday that the labour market had stabilised.
"Evidence from the Bank of England's agents and recent employment surveys is that the labour market in the UK has stabilised and that labour demand in the private sector may have already started to pick up."
David Tinsley, an economist at National Australia Bank in London and a former Bank of England official, agreed that rising unemployment had come to an end - for now.
"It may pick up again next year. It's hard to see how a steady pace of improvement will be maintained as public-sector job losses start to bite."
Vicky Redwood, of Capital Economics, was also cautious about future downward trends. "We still doubt that private sector hiring will pick up strongly enough to offset the severe public sector job cuts," she said.
The UK jobless rate compares with 10% in the eurozone, 9.5% in the US and 5.2% in Japan, the ONS report showed.Pay rises slow
Meanwhile, the ONS reported that wage growth eased sharply in the three months to May, with average weekly earnings growth falling to 2.7% from 4.1% in the three months to April.
Stephanie Flanders, the BBC's economics editor, said: "The bottom line is that UK households are still seeing a significant squeeze in living standards as a result of the financial crisis, even if more people than expected have found paying work.
"And, lest we forget, the squeeze from higher taxes and lower public spending has barely begun," she said.

Thursday, July 8, 2010

US mortgage madness - is it happening again ?

Last night I caught up with 3 of my old mates from University, one of who has been living in Denver for the past year.

We touched on the credit crunch and generally set the World to rights, and he told a story that should cause reverberations around a World that is struggling to recover as it is......

He has some friends in Denver, and the husband is concerned about his job at the moment, and the potential effect that being out of work could have on their ability to pay their mortgage etc.

Their house has a bit of equity, so they have decided to put it on the market, and either downsize, or rent, which would allow them a bit of cash to use as a buffer.

So, they went to their bank to let them know what they were planning to do

"Why do you want to do that ?" Says the bank

"Because we may have problems paying the loan", say the couple

So the bank says (and I paraphrase) -

"Why don't you stay in the house, we will refinance onto a better rate, and go up to 125% ..."

Taken aback, our couple say "But we don't need more money, and we will still have problems paying"

"No problem" say the bank. "we will extend your term to 30 years hence reducing the monthly payments"

Shocking eh?

This is exactly the type of irresponsible lending that got us in the huge pile of shit that we are still trying to get out of. Be afraid, it could be happening again.............

ECB leave interest rates unchanged again

The European Central Bank left its benchmark interest rate unchanged at a record low of 1 percent for the 14th consecutive month on Thursday amid lingering concerns over the health of the continent's banking sector.
The ECB's governing council had been widely expected to leave its refinancing rate where it has been since May 2009. Economic growth in the 16-nation eurozone remains modest and inflation tame - fueling expectations the central bank will stay put for months to come.
After economic activity strengthened during the spring, eurozone gross domestic product is expected to keep growing at "a moderate and still uneven pace" ECB President Jean-Claude Trichet said in his opening statement to a post-decision news conference. Inflation rates should remain moderate next year, he added.
With rates on hold, Trichet was facing questions on banks' demand for cash and the upcoming publication of "stress tests" on European banks.
Market fears focus on concerns that banks are holding government bonds and other debt from financially troubled countries such as Greece, Portugal and Spain - and could be dragged into Europe's simmering government debt crisis.
To dispel such fears, European Union leaders have pledged to disclose the results of the "stress tests" designed to show how banks would do if circumstances worsen. Trichet welcomed that decision.
Results are to be published July 23. French Finance Minister Christine Lagarde has said they will show European banks are "solid and healthy."
The tests will cover 91 banks in Europe, which represent 65 percent of the European banking sector.
On Wednesday, the committee subjecting the banks to stress tests said it has widened the factors aimed at determining their financial health. That reinforced confidence in the results.
Last week brought signs of relief on another front as a record batch of unusual 12-month loans to banks expired smoothly. As the euro442 billion ($557 billion) in credit came due, the ECB said it would lend a lower-than-expected euro131.9 billion to banks for the next three months.
That suggested banks' cash needs are easing despite lingering worries about the impact of the eurozone debt crisis.
The outcome has helped lift the euro after a prolonged battering. The currency, which hit a four-year low below $1.19 on June 7, traded above $1.26 on Thursday.
Separately, the Bank of England left its base interest rate at a record low of 0.5 percent for the 17th straight month and left its asset purchasing program on hold. Britain's economic recovery remains fragile and public spending cuts are expected to hamper future growth.

Tuesday, July 6, 2010

Spanish Caja's - ticking time bombs

Even with Spain’s Cajas, or savings banks, completing the country’s most aggressive sector restructuring in history, after nearly 90%, or 39 out of 45 merged or participated in some form of “cold fusion” and benefiting from the financial assistance of the Spanish central bank, there has been precious little written about the actual holdings of this most aggressive lender of mortgage to Spain’s 20% unemployed population.
Until today: a new report by CreditSights’ David Watts indicates that investor worries about the Spanish banking system are very well founded and likely underestimate just how bad the true situation actually is. In “Spanish RMBS: Insider Caja Loan Books”, Watts concludes that the Cajas are likely hiding losses on home loans by takingnon-performing mortgages out of securitized pools. Absent this unsymmetrical onboarding of risk, the overall deterioration of the broader pool would have become ineligible as collateral in ECB refi operations. In essence, Watts says, “by buying the loans out of the mortgage pool, the cajas would be taking those weaker loans onto their own books.” This implies that the 3.7% serious delinquency rate reported by the cajas is in reality far higher, and likely “underestimates their potential losses.” And what’s worst: as ever more delinquencies mount courtesy of austerity, and the Cajas run out of cash to constantly buy up the weakest performing loans, all of Spain is about to lose ECB collateral access to its hundreds of billions in securitized RMBS, completely locking the country out of any access to liquidity, even that of the ultimate backstop, the European Central Bank.
Spain’s cajas are notoriously secretive about the state of their loan books. Which is why CreditSights took a bottoms-up approach, looking at a sample of 143 Spanish residential mortgage-backedsecurities collateralized by 136 billion euros ($170 billion) of loans,of which 45% was originated by cajas.
In an attempt to better understand the stresses that Spanish mortgages are under, we use Spanish RMBS investor reports to assess loan performance and compare how Caja-originated loans compare to those extended by the larger, more-diversified Spanish commercial banks such as BBVA and Santander. The performance of mortgages within caja-securitisations is noticeably weaker than for Spain’s commercial banks.
As CreditSights points out, the outstanding balance of securitized Spanish resi mortgages is estimated to have reached €168 billion, representing 15.3% of all mortgage lending in the country. Yet taking advantage of ECB generosity to take on all sorts of worthless assets on the left side of the ledger supporting the euro, “even with investors globally taking a much more sceptical approach to RMBS following the US subprime crisis, issuance of RMBS in the Spanish market has remained relatively strong as issuers have retained deals primarily to use as collateral against ECB open-market operations.” In essence, the ker structural difference between the US and Europe can be summarized in the previous sentence: while US banks were at least smart enough to know they need to offboard RMBS associated risk to even dumber investors, in Europe, it was the ECB which for many years running was the backstop, thus preventing the need for prudent risk management. The end result: the collapse of the Spanish deposit savings system.
The chart below shows the dramatic surge in RMBS retention at about the time the subprime market in the US blew up. The primary “beneficiary” of this stupidity – the cajas.

As to the reason why the cajas are avoided like the plague by virtually everyone, the chart below says it all: while everyone was enjoying the credit fuelled binge on the way up (very much as the US was), the reversion has yet to catch up with reality. The truth is that even as the quarterly change in lending has plunged, the property price index is massively higher than where it should be currently. Once the benefits of record low Euribor and other artificial props finally expire, look for Spanish real estate prices to literally plummet destroying not just the local banking system, but that of the entire interlinked European financial system.

And a quick detour into Spanish CMBS. Watts explains: “As a percentage of GDP, Spanish household sector has debts of 85% and housing-related debts equivalent to around 65% of GDP. Indeed, including loans for residential development (commercial real estate lending), total housing-sector related lending is equivalent to 104% of GDP, nearly double where it was in 2003. That means that we estimate that Spanish property developers have debt equivalent to almost 30% of GDP.” This is simply another massive risk overhang that the banks never offloaded, and has so far flown very successfully beneath the radar. Yet unlike RMBS, the ECB does not accept CMBS as collateral against refi ops, leading one to scratch their head why the banks were so stupid in this particular case.
CreditSights has this last warning to add on Spanish development loans:
Given the US experience with development loans and the fact that much of this developer-related lending was no doubt focused on the worst affected markets – retirement and vacation properties – we think these loans are probably performing more poorly than the ordinary residential mortgage lending that we track within our RMBS sample. As a result, our sample may understate the true scale of problem loans within the Spanish banking sector.
Worried yet?
As to the actual results of CreditSights broader analysis of , the chart below summarizes that as the deterioration in Spanish unemployment accelerated, delinquencies remained somewhat flat, primarily courtesy of a collapsing Euribor rate. As we have pointed out recently, now that the LTRO has matured, Euribor and Libor have only one way to go: up.

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So back to the split between caja-originated mortgage versus those issued by the large banks, Watts confirms that there is a material underperformance when it comes to Cajas: “the most obvious takeaway is that mortgages originated by cajas have been running at higher delinquency levels than mortgages originated by Spain’s commercial banks for at least the part four years.” The chart below demonstrates just how much worse the Cajas books’ are, even based on doctored public data, than banks:

The key question posed by Watts, and whose answer is truly troubling, is the following: what is driving the volatility in the caja’s mortgage performance. The explanation offered: “we believe this phenomenon might be partially explained by the removal of delinquent mortgages from Spanish RMBS pools by the originating bank during the first and second quarters of 2009. Mortgage repayments exhibited a dramatic rise during this period. The average repayment rate on securitised caja-mortgages rose by 360 bps from 6.7% in the fourth quarter of 2008 to 10.3% in the first quarter of 2009.”
And the punchline that should shut up “all is well in Spain” apologists once and for all:
We understand that both cajas and Spanish banks have been supporting their RMBS by buying some delinquent mortgages out of the pool. Buying mortgages out of the pool will reduce delinquency rates and will also boost repayment rates – to the RMBS, the loan is considered to have been refinanced by the caja. Issuers are not obliged to provide such support to their RMBS transactions but the rise in delinquencies may have threatened ratings on retained deals, meaning that they would have become ineligible as collateral in ECB refinancing operations. By buying the loans out of the mortgage pool, the cajas would be taking those weaker loans onto their own books. That means that the current 3.7% serious delinquency rate (the orange line on the right-hand chart above) may flatter the performance of the cajas’ mortgage books and underestimate their potential losses.
CreditSights concludes with a somewhat much somber bigger picture analysis:
A further decline in interest rates has for the moment allowed the aggressive levels of leverage not to implode, despite falling Spanish wages and rising unemployment. Indeed, Spanish mortgages are performing only slightly worse than UK prime loans and are performing considerably better than UK-performing loans.
But behind those ostensibly reassuring numbers lurk weaker performance in caja loan books and the prospect of substantially weaker performance on non-mortgage lending (i.e., loans to property developers). What’s more, if Spanish government austerity packages have knock-on effects for Spanish household incomes, most obviously as a result of reductions in public-sector wages, then this level of mortgage indebtedness will become less sustainable and would no doubt precipitate further rises in delinquencies.
And the most dire side-effect of an avalanche of increasing delinquencies, and the resultant inability of the cajas to mask the deterioration by buying back all the worst-performing loans, would be the loss of ECB access. In the meantime, the cajas would get destroyed as they already are the proud owners of the very worst loans available: “Any mortgages that cajas have been purchasing out of their RMBS loan pools could have been artificially reducing the level of bad loans in RMBS while simultaneously undermining the quality of cajas own assets”

Latest currency update : Good news for Spanish Mortgages

The latest market report from our friends ar Foremost Currency Group

Last week we saw the Euro reach a high of 1.2456 for the first time in more than 18 months. This as investors shunned the single currency on funding concerns in the euro zone ahead of bank repayments to the European Central Bank as well as more debt auctions. The pound extended gains after Bank of England policymaker Andrew Sentance stated that drastic tax hikes and spending cuts outlined in the new coalition government's budget last week would not remove the need to start raising interest rates. As we have often seen in the past with sterling strength often comes some retraction. This as funding concerns in the euro zone eased with Spain's auction of 3.5 billion of five-year bonds having seen a lower bid-to-cover ratio but yields were only a touch higher than those at an auction in early May, easing concerns after a downbeat signal on ratings from Moody's the previous day.
With the current volatility in the market placing Stop loss and Limit orders on a rate may prove be useful. When markets are volatile, placing an upper and lower limit allows you to still aim for a higher rate should markets move in your favour, while protecting you from loss should the markets move against you. These contracts are suitable whether you are buying or selling foreign currency. Contact us today to discuss these types of contract further

Looking forward to the week ahead the most important news coming from the UK may be the MPC (monetary policy committee) Rate Statement and the official bank rate both of which are set to be released on Thursday 8th July. The rate statement measures the Interest rate at which banks lend balances held at the BOE to other banks. With Short term interest rates being the paramount factor in currency valuation this tends to be significant. The official bank rate most importantly discusses the economic outlook and offers clues on the outcome of future votes and is released with Official Bank Rate. Although only issued if the bank rate changes it is among the primary tools the MPC uses to communicate with investors about monetary policy.

In Europe the most crucial news could be the minimum bid rate and the ECB press conference. The minimum bid rate is the Interest rate on the main refinancing operations that provide the bulk of liquidity to the banking system and is usually delivered about 45 minutes before the ECB press conference. The ECB interest rate statement like the UK official bank rate is the primary method that the ECB uses to communicate with investors regarding monetary policy. It covers in detail the factors that affected the most recent interest rate and other policy decisions, such as the overall economic outlook and inflation. Most importantly, it provides clues regarding future monetary policy. With all this in mind it could prove to be a crucial week for the sterling/single currency pairing.

With the statements on the interest rate in both the UK and Europe and the growing financial crisis in the Euro zone this week is likely to be another volatile one. See the relevant data releases below for a concise round up of volatile market movers; however it is well worth taking the time for a consultation with an account manager here at Foremost Currency group.

Last week saw Sterling continue to make ground against the dollar, opening the week at 1.5043, reaching highs in excess of 1.52 in Friday trading. The main highlight of last week was the monthly non-farm payrolls release on Friday, which showed that unemployment was lower in the US than both the forecast, and last month’s reading. You can see below the improvement in the GBP/USD rate over the past month, from a low near 1.44 up to the current 1.52 at Interbank levels.

One factor behind the weakening of the Dollar this week has been the renewed pressure from the American government for China to un-peg its currency from the US Dollar. China had previously announced they would make moves to gradually allow their own currency to float freely. This weakened the US dollar, as it is seen as likely that the Chinese and other governments would in future reduce their US Dollar reserves, and invest in the Chinese currency the Yuan.
This week, we don’t have any significant data releases of note from the USA, so we will be looking to see if the pound can sustain it's recent gains against the dollar, or whether we will see profit taking by investors, where they reverse their positions to tie up any gains they have made in the rise of the currency. We saw this happen last week for the GBP/EUR cross, and as a result, the pound lost nearly 2% in value against the single currency.
Looking at the broader picture, we are now at almost a 6-month high against the Dollar, therefore locking in at these levels and capitalising on your own currency gains is certainly worth consideration if you have any upcoming requirements in the short to medium term future. By paying a deposit of up to 10%, you can fix your exchange rate at the current level for anything up to 2 years, giving you peace of mind about the fluctuating exchange rate.

For more details, and a free consultation to outline your options, contact us today on 01442 892 060.

This Weeks Data

The main event for the week is the interest rate decisions for the EU and UK on Thursday. While rates will be left on hold, any comments that indicate future interest rate movements can have a nig impact on exchange rates. Contact us today for a free consultation on how economic data can impact on the cost of your currency purchase.

US Holiday for Independence Day. For the EU we have Retail Sales for Germany and the EU as a whole, in addition to some confidence measures. IN the UK we have a measure of inflation. If it’s higher than expected then Sterling may gain.

A quieter day for data releases. There is an interest rate decision in Australia, although we expect rates to say on hold this month. In the USA there is some manufacturing data which reflects business conditions in the states.
Gross Domestic Product data is released from the EU today. GDP is considered as a broad measure of the Eurozone economic activity and health. A rising figure could strengthen the Euro and bring GBP/EUR rates down, and vice versa.

The busiest day of the week for data. We have an interest rate decision for both the EU and UK. Rates will probably be left on hold, but the comments that accompany the decision can affect exchange rates. Also in the UK, we have a GDP estimate, Industrial and Manufacturing production. These are significant releases and may well affect the value of Sterling. In the USA Jobless measures will be watched closely.

Inflation data from the UK in the form of the Producer Price Index, which is a monthly measurement of the rate of inflation experienced by the UK manufactures when buying goods and services. A high reading can boost Sterling but a lower reading may cause rates to drop. Consumer prices from Germany is the main data from the Eurozone.

Monday, July 5, 2010

House in Spain for sale, with land and stables

We are pleased to be able to offer this Equestrian property with an OCA licence for 5 horses and a totally flat 5,000m2 plot situated in the countryside with fabulous routes for riding.

Approached via a good dirt track with an electronic entrance gate, there are 5 post and rail paddocks with electric fencing for added security.

There are 2 stables with tack and feed room plus a large store room. There is a 2 - 3bedroom house and a walled and gated swimming pool.

The house comprises entrance hall, open plan living room with fireplace, kitchen with granite work tops, dining area, sliding glass doors to 42m2 day room/bedroom 3 with sliding glass windows to garden. Arch from living room to bathroom, bedroom 2 with fitted wardrobes and bedroom 1. There windows have rejas and persiana blinds. The property has internet, mains electricity and its own well.

Situated near the popular town of Coin, this property is conveniently situated for access to the coast at Marbella, and airport at Malaga.

This property is available for just €395,000. For further information, additional photos, or to arrange a viewing, please email

Thursday, July 1, 2010

Spanish banks merging and restructuring

SPAIN will pump nearly $16 billion into problem savings banks amid intensified EU efforts to ease global fears for its banking systems.

In what could be a key step toward cleaning up a sector reeling from the collapse of a decade-long housing boom, Spain's central bank outlined details overnight behind a state-financed bank rescue fund that it said will support a “historic” consolidation of the country's savings banks.

This is, as I have said many times, long overdue, as it was clear to anyone on the Costa's, that there were far too many branches of far too many banks, all competing for the same business.

The Bank of Spain said it authorised injecting €11 billion ($15.8bn) in public funds to aid in the restructuring and bolster the balance sheets of the merged banks.At the same time, the European Union said it would triple the number of banks subject to public stress tests to allay a growing global anxiety over the bloc’s finance sectors.
The announcements came amid building market pressures on European banks. Bank shares have been sliding since April because of concerns that banks' holdings of sovereign debt may not be repaid in full and that government austerity will stifle economic growth and hurt private-sector borrowers.
banks, in particular, have been hard hit by concerns over how their European counterparts will fare after the European Central Bank this Thursday halts a special loan facility for euro-zone lenders.Overnight, shares of the two biggest banks, Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA, fell 6.8 per cent and 7.2 per cent, respectively, while those of smaller lenders also dropped sharply.The Bank of Spain also said that 39 of 45 savings banks, or cajas, are involved in mergers. The largest will combine seven institutions to create Spain's third-largest bank by financial assets after Banco Santander and BBVA.

Hopefully the mergers will also allow for some new lending poilicies and practices. Some kind of reform in the way Spanish mortgages work is also well overdue.

The central bank said its deployment of the €11bn in state funds would leave the Spanish financial system in “a solid and solvent position”.Meanwhile, European officials said the number of banks that would be subject to a European Union stress-test exercise will expand from the 22 big banks that were examined last year to include a further 60 to 120 banks.The tests will for the first time incorporate banks such as German Landesbanken, which aren't among the region's largest but whose possibly weak financial condition has created uncertainty in financial markets. The wider net means major banks from many EU countries that weren't included in last year's stress-test exercise, such as Ireland, will now be incorporated.The tests, designed to see whether banks have enough financial strength to deal with serious economic shocks, will also for the first time examine whether they can withstand the effects of a sovereign-debt default in the euro zone.Officials didn't identify what defaults would be contemplated. The question is sensitive because European governments have repeatedly insisted default by a euro-zone government is impossible.The tests, which are administered by national regulators, should be completed by the middle of July, officials said. A report with bank-by-bank results and details on the test's parameters will be published in the second half of July, they said.Last year's EU-wide stress tests covered a smaller swath of banks and only aggregate outcomes were disclosed. Unlike last year's US bank stress tests - which were credited with helping shake off worries over banks that had gripped financial markets - the European exercise wasn't used to mandate that banks raise new capital.This year, European governments say they are preparing plans to ensure that banks whose capital cushions fall short receive new capital. In Germany, for example, the government has vowed a vigorous examination of its banks and has signalled it stands ready to provide more capital if it is needed.“Given the current uncertainty in financial markets, more transparency can restore trust,” German Chancellor Angela Merkel said in an interview with The Wall Street Journal last week. “But building trust will only work if every country also shows how it will handle the results, for example by recapitalising its banks if necessary.”The decision to publish the EU stress-test results was made by European leaders at a June 17 summit, but they didn't agree on which banks should be included and what information would be publicly released.The resolution to include more banks was made last Friday at a meeting in Brussels that included officials from the ECB, the European Commission, the Committee of European Banking Supervisors and representatives of EU governments.Chantal Hughes, spokeswoman for EU internal markets commissioner Michel Barnier, said Mr Barnier had backed what she suggested were broader, tougher and more transparent stress tests, believing them to be “more rigorous and credible”.German banks are Europe's most exposed to bad loans, according to a study published this week by PricewaterhouseCoopers. About €213bn in non-performing loans was sitting on the balance sheets of Germany's banks in 2009, a 50 per cent increase over 2008, according to the study. German banks are among the largest holders of both commercial and private-sector loans issued in vulnerable countries such as Greece and Spain. Some are also exposed to the US and Eastern Europe.Spain's central bank, aiming to settle market disquiet about its banking system, forced the hand of other European authorities when it pledged this month to publish the results of stress tests on all its banks.Nonetheless, even with the Bank of Spain announcement, there is still considerable work to be done for the country's banks. Lenders need to cut some 50,000 jobs and close as many as 9000 branch offices to cut costs and adapt to an environment of much weaker demand for credit, according to an estimate by US consultancy McKinsey & Co.Two cajas have been subject to intervention since the beginning of the downturn: Caja Castilla-La Mancha and Cajasur. The first drained Spain's deposit-insurance fund of €3.78bn, while the state-financed bailout fund is providing €800 million to cover losses at Cajasur.Spain had already set aside €12bn in the bailout fund, and it can be leveraged up to a maximum of €99bn if needed.S&P credit analyst Jesus Martinez said the final sum drawn from the fund will depend on how the macroeconomic situation in Spain evolves, and how the individual merger processes evolve. “If problems aren't solved, more (than the €11bn) will be needed,” he said.In a related development, loan losses from the real-estate sector continue to pile up.S&P recently warned of a potential new wave of insolvencies among real-estate developers, leading to higher credit losses on lending to the sector.The latest big casualty, Sacresa SA, filed for protection from creditors in a Barcelona court on Monday, defaulting on €1.8bn in debt.

Wednesday, June 30, 2010

Spanish prices under pressure until 2012 says Fitch

The Spanish property market correction will run into 2012, with prices down by 30% in total, say ratings agents Fitch.

Spanish property prices haven’t fallen enough, according to a new report from Fitch Ratings.
“Fitch believes that Spanish house prices remain over-valued relative to income thresholds and need to decline further to improve affordability dynamics,” says Rui Pereira, Managing Director and Head of Fitch’s Spanish Structure Finance in Madrid. “The supply overhang of unsold homes, more pro-active sales strategies by financial institutions, and reduced credit availability are also expected to weigh on Spanish home prices over the near-term.”
Fitch question official figures showing that prices have fallen just 11.2% since Q1 2008, pointing to a drop in transactions of 48% between 2006 and 2009. Sales that do go through happen at prices well below the government index, argue Fitch.
Fitch use affordability measures, house price long term equilibrium, and the imbalances of demand and supply to judge the current price of property in Spain.
At the height of the boom, the affordability ratio peaked at 7.7 years (cost of property/gross household income), up from 3.9 years in the years 1995-2000. For sustainable affordability ratios of around 5 years, prices need to fall by 30% from peak.
Fitch expect prices of holiday homes on the coast to fall the most, i.e. more than the 30% average.

Spain bank stress

Spain is demanding the ‘immediate publication’ of the stress tests on EU banks. Minister for Tax and the Economy, Elena Salgado, said that the publication would verify the solvency of the Spanish banking system.The call comes with the markets under pressure as many EU banks are due to repay loans to the European Central Bank this week, a situation which has send many markets, including Madrid, sharply south.Today the markets have taken a breath as in the event the banks requested less money than expected from the ECB. The IBEX 35 is among those to have rallied early today in response, but it fall back later.The Bank of Spain has approved help of 8.035 billion € for the caja savings bank in Spain. Most of the funding will go to the so called ‘cold fusion’ between Caja Madrid and Bancaja which will get 4.465 billion.Meanwhile the Chairman of the BBVA bank, Francisco González, has said that Spain and Europe will exit recession strengthened. However he also warned of the need for the Government to take ‘more measures’ and be ‘more rigorous’.Deputy Prime Minister, María Teresa Fernández de la Vega, said on Wednesday that the government would not be withdrawing the 420 € extra payment made to the unemployed whose standard payments have been used up. Minister for Employment, Celestino Corbacho, had said the subject was under debate in cabinet earlier, but de la Vega said social protection would be maintained.Non-financial companies earned on average 4.8% more than a year ago in the second quarter of the year, according to the Bank of Spain. It comes after a fall last year of 27.9% although the bank notes those businesses are continuing to reduce employment and investment levels.The Portuguese Government is to use its ‘golden share’ to stop the sale of the Vivo telecoms company, which is in the target sights of Telefónica. The sale to Telefónica had obtained support from 74% of the shareholders in Portugal Telecom, but will not now go ahead, even at the offered price of 7.15 billion. Telefónica is really targeting the market in Brazil where Vivo has more than 53 million clients.The so-called TV wars for football coverage in Spain have taken a new turn today with the payment by the Prisa group of 90 million € to Mediapro for those rights. Sogecable, owned by Prisa, has made the payment to the courts in Barcelona as the down payment for the football Primera and Second division TV rights for next season.As VAT rates go up on Thursday with the introduction of the new 8% and 18% rates, gas users also face a 6.5% increase from the same day. A deal has been done not to increase electricity also, but 3.2 million gas consumers who are on the TUR last resource tariff will be paying more.Butane gas is also on the rise, with the normal butane bottle costing 4.7% more from Thursday. This is in addition to earlier increases this year which means a 14.4% increase so far this year.The Euribor rate, used to set most of the mortgages in Spain has ended June at 1.28% after the third consecutive month to see an increase. It’s the highest rate since August 2009, although mortgages which see their annual revision this month will still see a reduction.The European Commission has fined six Spanish steelworks for price fixing. The charge affects 17 groups in total worldwide, and more than half the fine falls on ArcelorMittal.A court in Granada has ordered the Spanish Airports Authority AENA, respect previous wage conditions for air traffic controllers in Granada Airport. AENA was found guilty of not correctly informing workers, with 45 days notice of their changes. However the ruling is open to appeal and AENA has already got in touch with the Andalucian High Court of Justice.Unemployment among university graduates has doubled since the start of the recession in Spain. It had reached 9.4% in 2009 where the EU average is 4.8%.Read more:

The Winker's farewell

I don't normally like to gloat, and it doesn't make up for England's pathetic exit from the World Cup, but the sight of Cristiano Ronaldo not performing and suffering an ignominous exit warms the cockles of my heart.
In the end Portugal tried to contain Spain by playing loads of men behind the ball, whilst Spain probed for the opening which eventually came to David Villa.
Ronaldo was also caught rather charmingly spitting towards the cameraman as he walked from the pitch at the end of the game. What a nasty little piece of work he is.......

UK mortgage lending still subdued

The forthcoming Budget will keep the property market subdued, lenders say
UK mortgage lending remains subdued, according to the Council of Mortgage Lenders (CML).
Its comments came as it said the amount lent in new home loans rose by 7% in May from the previous month to £11.3bn.
Although that was up 10% from a year ago, the level of new lending this year has been low by historical standards.
The CML said higher taxes and public spending cuts to be announced in next week's Budget would probably subdue mortgage lending further.
"The market will inevitably be affected by how policy impacts on the wider economy - particularly on household finances and confidence," said the CML's economist Paul Samter. First-time buyers
In the latest edition of its monthly publication "Trends in Lending", the Bank of England said that lenders expected mortgage borrowing to remain "broadly flat" in the next few months.
"Contacts of the Bank's network of agents reported that demand for housing, especially among first-time buyers, continued to be constrained by tight credit conditions," it said.
"There has been an increase in the number of advertised products, including for loan to value (LTV) ratios of over 75%, which are often used by first-time buyers.
"However, the median LTV ratio on new loans to first-time buyers has changed little over the past six months," the Bank pointed out.
Despite the throttling of new lending due to the continued credit squeeze being experienced by banks and building societies, house prices have risen this year, according to most surveys.
The government's own survey, compiled by the Department for Communities & Local Government (DCLG), suggested this week that prices had risen by 10% in the past year.
The explanation put forward by most analysts is that prices have been pushed higher by a shortage of homes being put up for sale.

Tuesday, June 29, 2010

Latest currency update

From our partners at Foremost Currency Group :-


Last week we saw the Euro reach a high of 1.2210, this as expectations of the UK budget would get Britain back on a sound fiscal footing offering more incentive for investors to cover extreme short positions in the UK currency, thus driving Sterling to its strongest level against the single currency in more than 18 months. The Budget announcement by Chancellor of the Exchequer George Osborne on Tuesday 22 June showed the new UK coalition government is serious about tackling its budget deficit, with tough spending cuts looming we could see Sterling supported in the mid-term. The other important news this week was the rating agency Moody's statement on Wednesday that it would see Britain keep its triple-A rating if the government successfully implemented the tightest budget in a generation. This is seen as boosting the appeal of UK assets among overseas investors and helping the Pound, this as the Euro came under broad selling pressure after the cost of protecting Greek government debt against default rose further, emphasising the revival of Sterling more as a result of Euro weakness rather than Sterling strength.

With the growing volatility in the markets the use of a forward contract can benefit you in eliminating risk and safeguarding your funds. The forward option takes time, interest rate differential and volatility in the market into consideration giving you the option of buying live to the markets on the day by paying a small deposit upfront, with a settlement period for the balance of up to 2 years.

Looking to the week ahead the most crucial news may the House price index (HPI) and Gross domestic product (GDP) announcements in the UK on Wednesday 30 June. The House price index (HPI) delivered by Nationwide bank gives us the change in the selling price of homes with mortgages. The HPI is the UK's second earliest report on housing inflation and the impact tends to be significant, as it is a leading indicator of the housing industry's health and because rising house prices attract investors and spur industry activity, however it varies from month to month. The GDP being the broadest measure of economic activity and the primary gauge of the economy's health as it measures change in the inflation-adjusted value of all goods and services produced by the economy; it may prove to be crucial to the GBP/EUR currency pairing.

With the news on the GDP and HPI in the UK and the growing financial crisis in the Eurozone this week is likely to be another volatile one for the GBP/ EUR currency pairing. See the relevant data releases below for a concise round up of volatile market movers; however it is well worth taking the time for a consultation with an account manager here at Foremost Currency group.

Sterling appreciated against the USD last week following Chancellor of the Exchequer George Osborne’s delivery of a tough but balanced budget and although the measures outlined would mean higher taxes and spending cuts investors reacted favourably towards Sterling.
In the emergency budget Osborne revised down growth forecasts for 2010 and warned that unemployment would reach 8.1%. Strength for Sterling came from the tax policy and despite the VAT increase to 20% in January 2011, tax relief measures on corporate taxation and the fact that the VAT increase would not impact fuel costs were both seen as very positive measures to support economic recovery and stimulate industry in the UK. Further support came from the Fitch rating agency who called the UK budget a ‘strong statement of intent’, rating agencies in the past have heavily criticised the UK debt levels and the positive statement encouraged investor confidence. Moody’s rating agency followed suit the following day and provided additional market confidence after it released a statement saying they felt the UK budget was broadly in line with expectations and addressed all the major concerns on economic growth.
The only other positive remaining event for Sterling last week was the Bank of England minutes that revealed a surprise 7-1 voted on interest rates. MPC member Andrew Sentance voted for a rate hike. Sentance also went on the say that he felt despite current uncertainties it was appropriate to begin to gradually withdraw some of the exceptional monetary stimulus. The minutes boosted Sterling across the board as traders priced in the possibility of future rate hikes and investor risk appetite increased.
Economic data from the US created some safe haven buying of the Dollar as investors questioned whether the European debt crisis had some impact in slowing the US recovery. US Q1 GDP dipped slightly lower than expected but was offset by a strong increase in consumer spending and sentiment, the Federal Reserve Bank kept interest rates unchanged at 0.25% and made no changes to inflation or growth forecasts. Speculation regarding the G20 and mixed economic data was clear as a change in sentiment could be seen in GBP/USD levels as the Dollar closed the week trading near its weekly lows.
In the coming week markets will open to the G20 meeting, although the likelihood of a definitive statement addressing the European debt crisis is unlikely, a lack of unity could unsettle the markets and allow for safe haven buying into the Dollar. With Market confidence restored after last week’s budget announcement and the commitment from the UK government to take aggressive measures to reduce Britain’s deficit, Analysts are now concerned that the lower spending power could have a negative impact on growth and as such could cause further volatility for Sterling. Former BoE member David Blanchflower recently warned of the possibility for a double-dip recession in the UK and this could add to market jitters ahead of the GDP release. For an in depth view into what may affect your currency requirements please see our market data section below and/or contact your FCG account manager for a personal consultation.
This Weeks Data

The weekends G20 meeting will likely have an impact this week, as the EU debt crisis was the focus of discussions over the weekend. Last week we hit a 19 month high against the Euro and a 6 week high against the US Dollar. Any announcements could cause volatility in rates. If a clear plan is agreed to assist the EU that appeases the markets, the currency could strengthen and GBP/EUR rates could fall back away. If however no clear plan is agreed, and investors remain wary of investing in the Eurozone, we could see the Euro continue to remain weak and good buying levels remain.

The main fundamental data for the week is as follows:

Inflation data from Germany the main news today, which is an indicator to measure inflation and changes in purchasing trends. A high reading may cause GBP/EUR rates to fall. Elsewhere we have house Price data for the UK that gives an idea how the overall economy is faring. In the USA we have core personal consumption which again is an inflation indicator.

Today is all about confidence, and the focus is on the EU. We have consumer confidence, industrial confidence, Economic confidence and services confidence. If the measures show they are confident then the Euro may gain. There’s not much to be confident about in the EU at the moment, but developments from the G20 meeting may change this. Later in the day we have UK consumer confidence.

More significant data today – from the UK we have Gross Domestic Product. GDP is considered as a broad measure of the UK economic activity and health. Generally speaking, a rising trend has a positive effect on the GBP, while a falling trend is seen as negative. Unemployment measures from Germany and the US today should also be taken into account.
Inflation data is the only UK release of note. With the BoE minutes last week showing a vote for higher rates, a high inflation reading could cause the Pound to rally slightly. Building permits from Australia and commodity prices from New Zealand may affect the antipodean currencies today. In the US, various jobless measures may affect GBP/USD rates.
Producer Prices from the EU will give an indication of future interest rate movements in the UK. There are also unemployment measures for the EU that may affect GBP/EUR rates. The most important release is the non Farm Payrolls from the USA. As these are so hard to predict, the figure often is significantly different than forecast and so can cause big swings in GBPUSD rates. If you need to buy or sell Dollars, speak to us before this release to ensure you are protected.

For more information on the information contained in this report, contact us today:

Tel: 01442 892060

Monday, June 28, 2010

£5 cash machines introduced

So there are a number of £5-only cash machines that have been introduced, in order to get more of the notes into circulation. Retailers complain that £5 notes are hard to come by and difficult to keep. There is also evidence that smaller denominations of notes can help people to budget. Amazing to think that after all these years, it will be possible to go to a cashpoint and just withdraw a humble fiver. Sign of the times, eh?

Ok so the football was rubbish

from an England perspective anyway. So do we now switch to supporting Spain as a default second team, or maybe one of our other European neighbours ?
The way that things have gone in recent times you could be forgiven for wishing ill on places where you may have bought property, particularly given the problems in Spain.
But, we are all in the same boat to a degree, and a positive outlook to the future can be as beneficial in some ways as hard financial reality.
At the moment we are cheering the rise of the pound against the euro, which is good on 2 scores :-
Firstly, UK property owners in the eurozone have more affordability when it comes to paying their mortgages and paying for maintenance etc. And even holidaymakers have more ready cash to spend thanks to the exchange rate.
And secondly, for the Spanish there is an obvious benefit of more Brits able to spend euros in Spain. The exchange rate only affects them if they come to the UK. The flow of people and money has always largely been from UK to Spain, so the Spanish would no doubt prefer a strong pound.
Compared to other eurozone countries the exchange rate doesn't affect, for example, Germans on holiday, although relative prices between the countries do
Thanks for reading

Tuesday, June 15, 2010

9 reasons why Spain is a disaster waiting to happen

1. Even before this most recent crisis, unemployment in Spain was approaching Great Depression levels. Spain now has the highest unemployment rate in the entire European Union. More than 20 percent of working age Spaniards were unemployed during the first quarter of 2010. If people aren't working they can't pay taxes and they can't provide for their families.
Also, in the 18-25 age group, there is now 40% unemployment, which is appalling. Spain is trying to address it's labour laws which make it very difficult to emplopy people on full contracts because it is very difficult to sack staff. Many are employed on short term contracts or cash-in-hand. As soon as interest rates begin to rise there will be big mortgage problems for those out of work as their monthly costs shoot up.

2. In an effort to stimulate the economy, Spain's socialist government has been spending unprecedented amounts of money and that skyrocketed the government budget deficit to a stunning 11.4 percent of GDP in 2009. That is completely unsustainable by any definition.

3. The total of all public and private debt in Spain has now reached 270 percent of GDP.

4. The Spanish government has accumulated way more debt than it can possibly handle, and this has forced two international ratings agencies, Fitch and Standard & Poor’s, to lower Spain’s long-term sovereign credit rating. These downgrades are making it much more expensive for Spain to finance its debt at a time when they simply can't afford to pay more interest on their debt.

5. There are 1.6 million unsold properties in Spain. That is six times the level per capita in the United States. Considering how bad the U.S. real estate market is, that statistic is incredibly alarming.

6. The new "green economy" in Spain has been a total flop. Socialist leaders promised that implementing hardcore restrictions on carbon emissions and forcing the nation over to a "green economy" would result in a flood of "green jobs". But that simply did not happen. In fact, a leaked internal assessment produced by the government of Spain reveals that the "green economy" has been an absolute economic nightmare for that nation. Energy prices have skyrocketed in Spain and the new "green economy" in that nation has actually lost more than two jobs for every job that it has created. But Spain so far seems unwilling to undo all of the crazy regulations that they have implemented.

7. Spain's national debt is so onerous that they are now caught in a debt spiral where anything they do will harm the economy. If they cut government expenditures in an effort to get debt under control it will devastate economic growth and crush badly needed tax revenues. But if the Spanish government keeps borrowing money their credit rating will continue to decline and they will almost certainly default. The truth is that the Spanish government is caught in a "no win" situation.

8. But even now the IMF is projecting that the Spanish economy is going nowhere fast. The International Monetary Fund says there will be no positive GDP growth in Spain until 2011, at which point it will still be below one percent. As bleak as that forecast is, many analysts believe that it is way too optimistic considering the fact that Spain's economy declined by about 3.6 percent in 2009 and things are rapidly getting worse.

9. The Spanish population has gotten used to socialist handouts and they are not going to accept public sector pay cuts, budget cuts to social programs and hefty tax increases easily. In fact, there is likely to be some very serious social unrest before all of this is said and done. On May 21st, thousands of public sector workers took to the streets of Spain to protest the government’s austerity plan. But that was only an appetizer. Spain's two main unions are calling for a major one day general strike to protest the government's planned reforms of the country's labor market. The truth is that financial shock therapy does not go down very well in highly socialized nations such as Greece and Spain. In fact, the austerity measures that Spain has been pressured to implement by the IMF have proven so unpopular that many are now projecting that Spain's socialist government will be forced to call early elections.

So what is going to happen in Spain? The truth is that nobody can predict for sure how things are going to play out over the coming weeks and months. But what everyone can agree on is that the stakes are incredibly high. Speaking at the World Economic Forum in Davos, Switzerland, world famous economist Nouriel Roubini put it this way: "If Greece goes under, that’s a problem for the eurozone. If Spain goes under, it’s a disaster." But right now the entire population of Spain (along with much of the rest of the world) is completely distracted by the World Cup. As long as the Spanish team does well, that is likely to keep the Spanish population sedated. But if the Spanish team gets knocked out of the tournament early that will put the entire Spanish population in a really, really bad mood and that could mean a really chaotic summer for the nation of Spain