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.