ALL BLOG POSTS AND COMMENTS COPYRIGHT (C) 2003-2018 VOX DAY. ALL RIGHTS RESERVED. REPRODUCTION WITHOUT WRITTEN PERMISSION IS EXPRESSLY PROHIBITED.

Thursday, December 26, 2013

This time it isn't different

The astonishing story of a thrice-failed Spanish bank:
Consider the story of Bankia.

Bankia was formed by merging seven bankrupt regional Spanish banks in 2010. The new bank was funded by Spain’s Government rescue fund… which received “preference shares” in return for over €4 billion (from taxpayers). These preference shares were shares that a) yielded 7.75% and b) would get paid before ordinary investors if Bankia failed again.

So right away, the Spanish Government was taking taxpayer money to give itself preferential treatment over ordinary investors. Indeed, those investors who owned shares in the seven banks that merged to form Bankia lost their shirts. They were wiped out and lost everything.

Bankia was then taken public in 2011. Spanish investment bankers convinced the Spanish public that the bank was a fantastic investment. Over 98% of the shares were sold to Spanish investors.

One year later, Bankia was bankrupt again, and required the single largest bailout in Spain’s history: €19 billion. Spain took over the bank and Bankia shares were frozen on the market (meaning you couldn’t sell them if you wanted to). When the bailout took place, Bankia shareholders were all but wiped out, forced to take huge losses as part of the deal. The vast majority of them were individual investors (the bank currently faces a lawsuit for over 140,000 claims of mis-selling shares).

So that’s two wipeouts in as many years.

The bank was taken public a year a second time later in May 2013. Once again Bankia shares promptly collapsed, losing 80% of their value in a matter of days. And once again, it was ordinary investors who got destroyed. Indeed, things were so awful that a police officer stabbed a Bankia banker who sold him over €300,000 worth of shares (the banker had convinced him it was a great investment).

Which brings us to today.

Bankia remains completely bankrupt. But its executives and the Spanish Government continue to claim that things are improving and that the bank is on the up and up. Indeed, just a few weeks ago, the Wall Street Journal wrote an article titled “Investors Show Interest in Bankia.” The story featured a quote from Spain’s Finance Minister that, “… it is logical. The perception of Spain has improved and Banki has improved a lot.”

Bear in mind, this is a bank that has wiped out investors THREE times in the last THREE YEARS. So that’s three different rounds of individual investors being told that Bankia was a great investment and losing everything. Every single one of these wipeouts was preceded by both bankers and Spanish Government officials claiming that “everything had been fixed” and that Bankia was a success story.

And now the Spanish Government is trying to convince them to line up for a fourth round.
Keep this in mind when you read the reassurances that this time, the green shoots really have been spotted, that the economy is growing at more than 4 percent per quarter, and stocks are cheap at their all-time highs if you only look at them in just the right way.

Labels: ,

54 Comments:

Anonymous Rantor December 26, 2013 1:15 PM  

No not Spanish Banks... Facebook and Twitter, that is where to place your nest egg, for the long term.

Anonymous Alexander December 26, 2013 1:16 PM  

Baby come bankia, you know I love you. Why do you keep making me hurt you?

Anonymous Bobo December 26, 2013 1:37 PM  

Look on the bright side ...a cop got buggered sans lubricante, AND a banker got stabbed.
That's a big twofer...

Anonymous Bobo December 26, 2013 1:39 PM  

Look on the bright side ...a cop got buggered sans lubricante, AND a banker got stabbed.
That's a big twofer...

Anonymous Anonymous December 26, 2013 1:45 PM  

That's a real puzzle, how combining seven bankrupt companies didn't produce a single profitable one. Surely no one could have seen that coming.

Anonymous Rantor December 26, 2013 1:49 PM  

They just need to fold in a few more bankrupt companies. That will make it all better.

Blogger Nate December 26, 2013 2:00 PM  

I've never quite understood this sales pitch:

Stocks are at an all-time high! You should totally be buying stocks!


umm... isn't the point to buy low?

Anonymous AlteredFate December 26, 2013 2:02 PM  

A police officer with 300,000 Euros to "invest"? No corruption there!

Anonymous Rantor December 26, 2013 2:13 PM  

Nate, I am taken aback, this is only the consolidation, building a floor for the next move up. Or is it the impact in $400B in margin debt and $1Q in derivatives coupled with the belief that the Fed will prop up the market forever?

Anonymous Freestater December 26, 2013 2:18 PM  

Dow 36,000 in no time bro's, let's get those helicopters ready for Uncle Ben!

Blogger JartStar December 26, 2013 2:25 PM  

Apparently there's more than one born every minute.

Blogger JCclimber December 26, 2013 2:25 PM  

I am once again amazed that people still fall for this crap with their hard-earned money. Except maybe it isn't hard-earned so they don't mind the astronomical risk of losing all of it for a marginal payoff.

I'm sure a similar hamsterization explains the continual voting pattern of the Republican and Democrat.

Like an abused spouse. Or a Paul Krugman

Anonymous DonReynolds December 26, 2013 2:27 PM  

I can hardly stop laughing, Vox. This is the funniest one you have had in years.

Anonymous Anonymous December 26, 2013 2:34 PM  

As the saying goes... Fool me once...

Funny thing is, there isn't a fool me three times or fool me four times in that saying.

I wonder where all the money is going. It IS going SOMEWHERE. Maybe Greece.

--Hale

Anonymous DonReynolds December 26, 2013 2:50 PM  

Talk to people in the hotel/motel business and they will tell you that nobody makes any money until the fifth owner. The first four owners go bust and each time the property gets cheaper at the fire sale until the fifth owner......apparently from Pakistan or India, who turns it into a family business (and a visa mill). I am not for sure if they actually make their money off renting the rooms, since they are cheap and often have low occupancy, but the payments to enable green cards for their "relatives" can be pretty amazing.

Anonymous Will Best December 26, 2013 3:01 PM  

A police officer with 300,000 Euros to "invest"? No corruption there!

That is roughly $400,000. I know police in the US that have that kind of nest egg (in addition to their pension and primary residence). They are all in their late 50s or older though. Really its not that hard. At inflation plus 2% ROI you are looking at a savings rate of around 15% for a family making median household income, which most government workers do these days.

Then again the saying goes you can't cheat an honest man. So if the guy was betting that kind of money, then either he was putting no more than 5% of his net worth up, or he felt he was getting inside information.

Anonymous Noah B. December 26, 2013 3:16 PM  

"umm... isn't the point to buy low?"

You see Nate, the market has its ups and downs, and every decent investment professional knows that you can't make money timing markets. Very few people actually buy at the lowest point and sell at its highest point. Real wealth comes from investing for the long haul. So instead of wondering if you can afford to invest in stocks, ask yourself if you can afford not to.

With an investment like Bankia, the important thing to remember is that the risk is already priced in. There's nowhere to go but up.

Anonymous Antonio December 26, 2013 3:20 PM  

As usual, the guys at ZH are in such a hurry to shock their public that they fail to analyze the situation in any relevant depth. Also as usual nowadays, things are much uglier than what the pessimist guys are telling you. All this Bankia mess is part of a deep, wide, and dirty political struggle in Spain.

The cajas, "regional banks" as ZH calls them, were non-profit entities controlled by regional politicians and far-left unions. A mess of corruption, inefficiency, and many weird situations: a for-profit bank could not own and caja, but cajas could (and some did) own for-profit banks. Cajas were often the final destination of politicians that, being Spanish politicians, could not be sent to jail. This is the case of a Socialist minister who led a massive program of illegal spying on everybody (including top businessmen, every important politician, presidents of major soccer teams, even the King!). But of course, being Catalan, he was sent to a Catalan caja. Nobody is blaming him of anything, he is a Socialist!

The mess in Caja Madrid (later Bankia) wasn’t worse than the usual caja. When they merged it with other cajas (that were in an even worse situation) to create Bankia they chose Mr. Rodrigo Rato (former finance minister with conservative president Mr. José María Aznar) to lead the new entity. By then it was already clear that the new entity had its days counted.

Mr. Rato was one of the few members of Aznar's cabinet that had managed to escape the political debacle of Aznar’s party by moving abroad to work for the IMF. Another member of that government has characterized the merger as “a wedding at gunpoint”. So the guy arrives in Spain, is chosen “at gunpoint” to lead the brand new bank, the bank implodes, and everybody blames him. The actual decision-makers, of course, being the sanctimonious accusers. How very Spanish.

And this is not even the tip of the iceberg. The cajas were the tools used by regional governments (and their pals the unions) to brutally expand their public spending and their vast networks of corruption.

That *The System* has repeatedly managed to fool the people to pay for this mess is the least surprising aspect of this museum of scandals. And it is not even the worse scandal: over 1.000.000.000 euros were redirected (into many pockets) from funds for the unemployed in the region of Andalusia and remain unaccounted; in 2006 somebody from the Socialist government tipped the terrorist group ETA that the police was about to launch a raid to dismantle their extortion operations, etc.

In other news, Santa brought me A Throne of Bones!

Anonymous map December 26, 2013 3:55 PM  

DonReynolds

"Talk to people in the hotel/motel business and they will tell you that nobody makes any money until the fifth owner. The first four owners go bust and each time the property gets cheaper at the fire sale until the fifth owner......apparently from Pakistan or India, who turns it into a family business (and a visa mill). I am not for sure if they actually make their money off renting the rooms, since they are cheap and often have low occupancy, but the payments to enable green cards for their "relatives" can be pretty amazing."

Except that motel/hotel was paid for by the federal government in the form of Minority Disadvantaged Business loans, at credit terms that guarantee profitability.

Blogger RobertT December 26, 2013 4:10 PM  

"Very few people actually buy at the lowest point and sell at its highest point."

This is a time honored and respectable strategy. Over the years cattle ranchers have adopted it as their own and perfected it; selling off when prices are low and feed bills are high;then buying back in when prices get high and feed bills get low. This is the primary reason most cattle ranchers make their money off the value of their land ... ... Until they get big enough they can grow their own feed, then this issue disappears.

Blogger RobertT December 26, 2013 4:16 PM  

"Talk to people in the hotel/motel business and they will tell you that nobody makes any money until the fifth owner."

I never heard this. But my experience is in resorts where the building seldom gets cheaper. In fact, I would hazard a guess it never gets cheaper. Hotels, motels, etc. are valued on their revenue streams and occupancy rates. In resort areas those numbers seldom decline for more than a year. It has also been my experience that the value of the real estate alone declines relatively fast requiring heavy annual maintenance to stay in the top tier. If they fail to make repairs you can find a real low price, but that's seldom a bargain.

Anonymous Titus Didius Tacitus December 26, 2013 4:22 PM  

But how do people get so cynical?

Anonymous Azimus December 26, 2013 4:23 PM  

I thought Americans lived in "Bankia". Spaniards live in "Banka-Loan-ia"

Anonymous TheVillageIdiotRet December 26, 2013 4:35 PM  

Well at least Generalissimo Francisco Franco is still dead.
What is it with Spanish Banks and Spanish Generals ?

DannyR

Anonymous DonReynolds December 26, 2013 4:37 PM  

Thank you, Antonio. One of the best posts I have read in a long time here.

Anonymous Boetain December 26, 2013 4:41 PM  

In Vegas properties go bankrupt, the bond and equity holders lose their money. But since there is positive cash flow, the doors usually stay open and some new people are always ready to loan the place money. Then the cycle repeats with them getting wiped out and new suckers taking on the risk the next time. Most of the time the suckers are big banks and big private equity - the supposedly super smart guys who should know better. The whole thing is really funny to watch.

Anonymous Noah B. December 26, 2013 5:10 PM  

"Most of the time the suckers are big banks and big private equity - the supposedly super smart guys who should know better. The whole thing is really funny to watch."

All incentive for them to care has been removed. It's not their own money they're playing with, and there are no consequences for making bad investments or selling bad commercial paper. Our society has become so corrupt that the simplistic idea of fraud being a felony is now somewhat antiquated.

Anonymous bob k. mando December 26, 2013 5:15 PM  

Antonio December 26, 2013 3:20 PM
As usual, the guys at ZH are in such a hurry to shock their public that they fail to analyze the situation in any relevant depth.



your details are interesting. if anything, even more 'shocking' than what actually got posted at ZH.

but i don't see that you've contradicted anything at ZH.

further, i would suggest that most of this is the kind of 'inside baseball' knowledge that would require knowledge of Spanish and familiarity with Spain Nat / Local news that most outsiders are not going to be aware of.

but that does raise the question:
IF this IS local news that your general Spaniard is / should be aware of ...
THEN why the hell do the Spaniards keep investing in this bank?

are Spaniards somehow unaware that their pols and unions are thoroughly corrupt? are they unaware that their pols bail out into admin positions at these "non-profit" banking entities?

Anonymous Jack Amok December 26, 2013 5:29 PM  

are Spaniards somehow unaware that their pols and unions are thoroughly corrupt? are they unaware that their pols bail out into admin positions at these "non-profit" banking entities?

Well, there is the old saying that "you can't cheat an honest man." Perhaps the Spanish investors know it's a scam but think they'll be one of the scammers instead of the scammees.

Anonymous Titus Didius Tacitus December 26, 2013 5:37 PM  

Yes, thank you Antonio.

Blogger roundeye December 26, 2013 5:59 PM  

Well done, sir.

Anonymous zen0 December 26, 2013 6:05 PM  

Who is managing these banks, Serge Tomiko ?

Anonymous CarpeOro December 26, 2013 6:17 PM  

PT Barnum was wrong. You don't need a sucker born every minute when the same ones keep flocking to the trough time, after time, after time.

Anonymous Titus Didius Tacitus December 26, 2013 6:51 PM  

Jack Amok: 'Well, there is the old saying that "you can't cheat an honest man.""

Long ago when I looked into who had set that meme running, it seemed to me that they had a strong self-interest in reducing sympathy for people who had been cheated and in reducing or forestalling anger against cheats.

Naive, honest people get cheated terribly all the time.

It's true that stupid people who think they are clever and ready to be mastermind criminals are particularly easy to cheat.

But there are plenty of people with subnormal intelligence or other problems, with defective educations, who really did "get off the boat yesterday", who will simply think an important government official or "respectable people" in the community would not lie, and who will invest their life savings accordingly.

In a state where the ruling elite has a strong sense of stewardship, the money from people like that will go mostly to productive investments, and the state and the naive people in it can prosper.

Blogger Some dude December 26, 2013 7:04 PM  

This comment has been removed by the author.

Blogger Serge_Tomiko December 26, 2013 7:25 PM  

Banks are not businesses. They manage a government created resource, money.

Spain has ceded their ability to create money to the European Union, hence banking cannot be effectively managed. Without sufficient deficit spending, defaults are more likely as the debt burden continues to grow but the money supply remains the same.

The banks never needed to be bailed out. The government had to increase its fiscal deficits so the debtors could pay their debts.

This is just another example of why the Euro is doomed.

Anonymous Jack Amok December 26, 2013 8:06 PM  

Long ago when I looked into who had set that meme running, it seemed to me that they had a strong self-interest in reducing sympathy for people who had been cheated and in reducing or forestalling anger against cheats.

Naive, honest people get cheated terribly all the time.


You're missing the parable. Maybe it would be better stated as "It's harder to cheat an honest man" but most con men work on people's greed. They offer easy money, a deal too good to be true, better returns than the honest guy down the street. The people suckered in may be a little slow, they may have just fallen off the turnip truck, but the con man still plays on their greed.

And just to be perfectly clear, the point of the saying is not to absolve the con man of his guilt, but to caution the would-be mark against his own greed.

Anonymous zen0 December 26, 2013 9:35 PM  

@ Serge_Tomiko :

Banks are not businesses. They manage a government created resource, money.

Out of the goodness of their heart, presumably.

Anonymous zen0 December 26, 2013 10:00 PM  

Wait a minute. The real Serge never sounds reasonable, no matter how wrong he is.

You are a fake Tomiko!

Busted.

Anonymous Titus Didius Tacitus December 26, 2013 10:20 PM  

Jack Amok, I'm not attacking you, but I don't like that saying, and I noticed a lot of people who love it, or close variations of it (like "you can only con a con artist") are con artists of various sorts, with no interest in alerting their victims, but strong interests in feeling good about themselves, disarming sympathy for victims, and softening anger against con artists of various sorts.

And knowing which deals are "too good to be true" as well as which charities are likely to be bogus is much more a test of intelligence and education than character.

Anonymous Titus Didius Tacitus December 26, 2013 10:26 PM  

People who rob other by using their high verbal intelligence are as guilty as those who rob others using their high physical strength.

Blogger D. Lane December 26, 2013 11:21 PM  

"stocks are cheap at their all-time highs if you only look at them in just the right way"

Flip the chart upside down.

Anonymous The other skeptic December 26, 2013 11:54 PM  

And then there is the AIDS vaccine research.

Blogger Doom December 27, 2013 3:14 AM  

Bankia just adds contrast and a touch of the right parfum de stench to the notions.

Yes, yes, I have seen stocks, and green shoot sightings, and laughed so hard I almost choked. I have a local friend who was telling me about stocks. Since he didn't have the money to invest, I didn't bother explaining why not. Like an excited puppy, so long as it can't hurt itself or others, it is easier to just let it be excited. It will wear itself out before long.

Gold? As an investment? Silver? Fools gold. In prep for a total collapse, with the understanding that nothing will be worth any more than what someone values it, sure. But as an investment? Not so much. Only as a temporary form of low level currency. Buy beans, grain, and other stores. Buy guns, bullets, magazines. Buy a place out of the hell-holes and hope you can get there.

I'm afraid most people who have spent fortunes on those things, however, but have never used them, figured them out, gotten used to them? Hell, perhaps more so than us little ones who have just enough for a bit, but have learned to live with less. It's not just what you have, but what you can do with it, and without. But it is going to hurt, if it comes... when it comes.

Anonymous VD December 27, 2013 3:38 AM  

Also as usual nowadays, things are much uglier than what the pessimist guys are telling you. All this Bankia mess is part of a deep, wide, and dirty political struggle in Spain.

Interesting. Thanks for the additional info.

Blogger Nate December 27, 2013 7:54 AM  

"Banks are not businesses. They manage a government created resource, money. "

Governments no more create money than they create music.

Anonymous Antonio December 27, 2013 10:05 AM  

bob k. mando

but i don't see that you've contradicted anything at ZH.


Right, I am not contradicting them, just expanding. I also agree with you that you need a good familiarity with Spain to be aware of these things. Which leads us to your question: “IF this IS local news that your general Spaniard is / should be aware of ...THEN why the hell do the Spaniards keep investing in this bank?”

Because if the regional politicians and unions control a very significant part of the banking system (former cajas, not so much proper banks), then imagine the situation with the media. Hint: the region of Catalonia has a population of 7 million, and 7 public television channels 100% controlled by the regional government. The first region to have multiple regional public TVs was the Basque Country; with a population of about 2 million, it had two regional public TVs as early as 1986. And most of these regional public TVs have a huge share of the audience.

In other words, this should be basic knowledge, but we certainly do not see it in the local news, or national news, often not even in specialized financial news.

You also ask: “are Spaniards somehow unaware that their pols and unions are thoroughly corrupt? are they unaware that their pols bail out into admin positions at these "non-profit" banking entities?”

Spaniards became very aware of the widespread corruption in the early 90s, the last years of Socialist president Felipe Gonzalez. Then, in 1996, the Socialists lost the national government to the so-called conservatives and the first statement by the new president (Aznar) was “let’s turn the page”, meaning, let’s look the other way, move on, nothing to see here. Although Aznar was in power 4 years less than Gonzalez had been, he granted more pardons than his Socialist predecessor. So Spaniards are aware, but we cannot see any way out of it.

What most Spaniards are not so knowledgeable about is the way in which the cajas worked. Many are still unaware that they were run by politicians and unions. The cajas had a well-earned reputation because decades ago they had been very useful and decent entities, then came ‘Democracy’...

Also, to be fair, when we are told that Spaniards fell again and again for the same trick, let’s not forget that the people selling these crap were the banks and cajas to their depositors. It’s not like your average Señor Fernandez sees this ad on tv and decides to buy. Rather, he goes to his bank (or caja) and they tell him that they have this fantastic product, and TVs everywhere magically agree, and the radios, and newspapers, and every politician, not to mention that sewer known as university. And Fernandez has had his money in that caja all his life and he sees it as some sort of corner store, not run by fat capitalists in some distant skyscraper. He knows those guys, he thinks.

Anonymous E. PERLINE December 27, 2013 11:01 AM  

Vox, your recounting of the Spanish Bankia failures was excellent. It shows that you can't expect a second party to look after your interests. If you want to get out of the dollar and have money to invest, buy real estate in digestible quantities. That means don't buy any property that costs more than $100,000. I think families that live in homes that cost more than $300,000 are skating on thin ice.

Anonymous bob k. mando December 27, 2013 11:15 AM  

Antonio December 27, 2013 10:05 AM
... And Fernandez has had his money in that caja all his life and he sees it as some sort of corner store, not run by fat capitalists in some distant skyscraper. He knows those guys, he thinks.



so, somewhat akin to how the average ugly American thinks about the Federal Reserve, less the neighborhood connection. it's always been there and everyone in authority tells you it's a good thing.

have you cross-posted this commentary to ZH? it would likely get more coverage there and it sounds like something that needs to be known.

Anonymous Antonio December 27, 2013 11:36 AM  

bob k. mando
have you cross-posted this commentary to ZH?


I never comment at ZH, I just find them too agitated for my taste. I very much prefer Vox and his commenters. Also, I am convinced that at this point, more coverage does not make much of a difference. Quality over quantity.

Anonymous Concerned Rabbit Hunter December 27, 2013 2:05 PM  

They are looking at environmental laws to punish people and keep tax revenues up:

http://wattsupwiththat.com/2013/12/27/new-tax-scheme-environmental-fiscal-reform/

Anonymous bob k. mando December 27, 2013 3:21 PM  

Antonio December 27, 2013 11:36 AM
I very much prefer Vox and his commenters.



welcome to you, then.

it will be interesting to have an 'inside Spain' perspective.

Anonymous Jack Amok December 27, 2013 7:29 PM  

And knowing which deals are "too good to be true" as well as which charities are likely to be bogus is much more a test of intelligence and education than character.

I disagree about that. Character (or lack of it rather) is often what causes people to shut off their brains and jump at the deal. Most people too stupid to know better are also too stupid to have enough money to swindle in the first place. Bernie Madoff didn't snooker a bunch of folks from the left tail of the Bell Curve after all.

But even so, "you can't con and honest man" is part of the attempt to educate people, to give them a catchy reminder to not let their desire for easy profits blind them to the risks.

Blogger James Dixon December 29, 2013 11:41 AM  

> umm... isn't the point to buy low?

Not quite. It's to buy low and sell high. I seem to have a bit of a problem with that latter half. :(

Post a Comment

Rules of the blog
Please do not comment as "Anonymous". Comments by "Anonymous" will be spammed.

<< Home

Newer Posts Older Posts