Will Spain score yet another own goal?

Oh, Spain. If only its politicians could be as surefooted as its football players.

At the end of May it announced that it was appointing two consulting firms to do a health check on the Spanish banking system.

As explained by the central bank, the review led by German-based Roland Berger strategy consultants and by Oliver Wyman [...] would have two parts. The first would be a general valuation of banking balance sheets in Spain and their capacity to resist an adverse scenario, it said. 

The results were due in the second half of June. The second “fundamental” part of the review would be to contrast how each banking group estimates the value and deterioration of its assets, BoS said.
(Source: New Europe)

One might think that if Spain really wants to know where the bodies are buried it would have hired a firm the caliber of BlackRock, or the like. (The Federal Reserve, for example, relied on BlackRock for similar work…but not without controversy.)

But fine — Oliver Wyman and Roland Berger it is. But just 1 week later Spain announced that it was also hiring the Big Four accounting firms (Deloitte, KPMG, PwC and Ernst & Young) to carry out full, bank-by-bank audits.

…And that’s when an odor of willy-nilly-we-don’t-really-know-what-we’re-doing started to hang around the whole exercise.

It persists. Just this past Tuesday Spain said that it would delay publishing the results of this Big Four audit. Instead of July 31st we’ll now have to wait until September to know what the real deal is. The reason given for the delay just doesn’t hold much water.

The delay seeks to provide the auditors with more time to complete their evaluation of the banks’ books and also responds to the fact that many Spanish companies and government institutions are only thinly staffed in August, a traditional holiday month when the cabinet and parliament rarely meet, this person said.

It makes sense that the private sector would be on holiday. But the cabinet and parliament, too? Really? In the midst of a crisis of this magnitude? And why should a month of holidays in August delay the publication of results expected in July?

Now today we have the results from the Oliver Wyman and Roland Berger practice round. Oliver Wyman estimates that if things don’t get much worse the entire Spanish banking sector will need only €16 billion to €25 billion in additional capital. Roland Berger says this base case capital number is €25.6 billion.

One only hopes that these numbers are somewhat reflective of reality, because if not, Spain stands to lose even more credibility than it already has in this clumsy process. Remember well the recent criticism given by ECB president Mario Draghi. On May 31st he referred to Spain’s botched analysis of Bankia, the troubled bank which eventually needed twice as much money as the government first thought. From El Pais:

 “What Dexia shows — and Bankia shows as well — is that whenever we are confronted with the dramatic need to recapitalize, if you look back, the reaction of the national supervisors [...] is to underestimate the problem, then come out with a first assessment, a second, a third, fourth…

“That is the worst possible way of doing things, because everybody ends up doing the right thing but at the highest possible cost and price.”

Time for Mariano to listen to Mario.

Tags: ECB, Eurozone, grexit, spailout, Spain, spexit

Category: Eurozone