Sunday, June 10, 2012

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

From ZeroHedge:
Over the past 24 hours, Zero Hedge covered the various key provisions, and open questions, of the Spanish bank bailout. There is, however, much more when one digs into the details. Below, courtesy of Deutsche Bank's Gilles Moec is a far more nuanced analysis of what just happened, as well as a model looking at the future of the pro forma Spanish debt load with the now-priming ESM debt, which may very well hit 100% quite soon as we predicted earlier. Furthermore, since the following comprehensive walk-thru appeared in the DB literature on Friday, before the formal announcement, it is quite clear that none other than Deutsche Bank, whose "walk-thru" has been adhered to by the Spanish government and Europe to the dot, was instrumental in defining a "rescue" of Spain's banks, which had it contaged, would have impacted the biggest banking edifice in Europe by orders of magnitude: Deutsche Bank itself.

From DB: Spain: the mechanics of “recap only” loans
The guidelines for an EFSF bank recap are quite precise. There will be no conditionality on fiscal policy or structural reforms. The loan will also sit on Spain's balance sheet, meaning the volume of recapitalisation – to be established after a new, independent stress test – will be crucial: it needs to be big enough to convince the market that Spain's banking issue, which has been festering for three years, is addressed in a credible manner, while not being so large as to jeopardize Spain's public debt sustainability. We model possible trajectories for Spanish public debt for various recapitalisation volumes. In an intermediate recap scenario of EUR80bn, Spain could realistically, in our view, keep public debt below 95% of GDP at peak and bring it back below 90% by 2020.

What would Spain need to do to access the "recap only" EU loan?
The "recapitalisation tool" created in July 2011 is normally open to countries "when the origin of the financial distress is strongly anchored in the financial sector and not directly fiscal or structural"....MORE
Also at ZH:
German Opposition Threatens To Scuttle ESM, And Spanish Bailout, Ratification
Details Emerge About Spain's Cramming Down "Bailout" Loan
Here They Come: Ireland Demands Renegotiation Of Its Bailout Terms To Match Spain
 So Much Changes In Two Weeks
Spain IS Greece After All: Here Are The Main Outstanding Items Following The Spanish Bailout
Spain Agrees To "Unconditonal" Bank Bailout