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Don Quijones

Articles by Don Quijones

Just How Safe is Spain’s Banking System?

2 days ago

Investment bank Mediobanca warns of “clear risk of contagion.”
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
“The Cover of La la Land with a Potential Horror Story” is the title of a report about Spanish banks, authored by analysts at Italian investment bank Mediobanca. The shares of many Spanish banks have surged in recent months, some as much as 50%, hence La La Land. “Banco Popular [the teetering bank we’ve written so much about] seems to be the only exception to a truly happy world, but the current situation could take a nosedive with clear risk of contagion for the rest of the sector.”
Spain’s sixth biggest bank, Banco Popular, remains on the verge of either collapsing or being gobbled up by a bigger bank before it collapses. The bank lost over 60% of its market cap

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Mexico’s Economy Is Being Plundered Dry

5 days ago

Debt is suffocating the economy, but where did the money go? 
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
The government of Mexico has a new problem on its hands: what to do with the burgeoning ranks of state governors, current or former, that are facing prosecution for fraud or corruption. It’s a particularly sensitive problem given that most of the suspects belong to the governing political party, the Institutional Revolutionary Party (PRI), which ruled Mexico uninterruptedly from 1929 to 2000. It returned to power in December 2012 with the election of Enrique Peña Nieto. And it clearly hasn’t changed its ways.
Some of the accused governors were so compromised they went on the run. In the last few weeks, two of them, Tomás Yarrington, former state governor of

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Is Barcelona’s Crazy Tourist Boom Too Much of a Good Thing?

9 days ago

It brings buckets of money, but what are the consequences?
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Barcelona, Europe’s most visited non-capital city (at least officially speaking), is now so saturated with tourists that even the tourists are complaining. In a recent study by the City Council, 40% of the tourists surveyed thought that prices in the city were too high, while 59% believed that the streets and tourist hotspots were too crowded.
They’ve got a point. In 2015 the city, with a total permanent population of 1.7 million, drew 8.9 million visitors, 6.5% more than the year before and a five-fold increase from 1990. And that’s just those who stayed in hotels. Airbnb hosts provided accommodation for a further 900,000 visitors. By 2016 that number had climbed to

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Here’s Italy’s Latest Plan B Where Desperation Meets Insanity

12 days ago

Selling securities backed by defaulted loans to NIRP refugees.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Nerves are beginning to fray in Italy’s banking sector, as pressure rises on the worst hit banks to remove the most noxious elements off their books — most likely at big discounts that will further impair their balance sheets. On Saturday Italy’s finance minister, Pier Carlo Padoan, begged the ECB for more time for the banks to clean up their act.
“We cannot demand that suddenly banks offload their NPLs, because this could be potentially destabilizing, especially if the problem involves several banks in the same banking system,” Padoan told a news conference.
By “several banks,” Padoan means perhaps the 114 banks, of the close to 500 banks in Italy, that have “Texas

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Three More Reasons to Worry about the Euro’s Future

16 days ago

From the “Doom Loop” to the Black Hole.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
“Despite uncertainty over Brexit — formally triggered last week by prime minister Theresa May — central bankers from around the world see the UK as a safer prospect for their reserve investments than the Eurozone, a new poll reveals”: The Financial Times.
At first whiff, this may smell counter intuitive. After all, it’s the UK that’s supposed to be in the weaker negotiating position over Brexit terms. It also risks losing a sizable chunk of its core industry, finance. Yet according to a survey of reserve managers at 80 central banks, who together are responsible for investments worth almost €6 trillion, the stability of the monetary union is their greatest fear for 2017.
They have good

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War on Cash Puts ECB, EU on Collision Course with Germany

18 days ago

Bundesbank: It’s a war on personal freedom and choice.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Relations between Germany, and the ECB have curdled in recent times over a key issue: the role of cash. Germans have a soft spot for physical lucre while the ECB and Europe’s executive branch, the European Commission, have openly expressed their desire to suppress, or even punish, its use.
For Germany’s central bank, the Bundesbank, the war on cash is a war on personal freedom and choice, in the name of saving a financial system and its absurd negative interest rates. Last year Bundesbank president Jens Weidmann warned that it would be “disastrous” if people started to believe cash would be abolished — an oblique reference to the risk of negative interest rates and the

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Spain’s Most Italian Bank Still “Solvent,” Claims Finance Minister

21 days ago

It just doesn’t let up with this bank.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
The future continues to look bleak for Spain’s most Italian bank, Banco Popular, which ironically once bore the slogan “Our Past and Our Present Guarantee Our Future.” Things have gotten so bad that when the country’s Minister of Finance Luis de Guindos was asked by a reporter today about the bank’s state of health, he responded: “the bank is solvent.” Which is kind of like a doctor saying, “the patient is alive.” Not exactly reassuring.
Popular just had its worst day of 2017 after seeing its penny stock tumble over 10%, from €0.90 to €0.82. This is a bank that was once ranked among the world’s most profitable by ratings company IBCA and which not so long ago boasted a share price of over

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Is the Global Taxman Coming?

24 days ago

But who are they really going after?
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Credit Suisse is once again under international investigation for allegedly helping its clients evade the prying eyes of national tax authorities. This comes after the bank was fined $2.6 billion by the U.S. government in 2014 for helping Americans evade taxes.
Helping high net worth private clients and corporations evade taxes, and then getting caught is not unique to Credit Suisse. Fellow Swiss megabank UBS and UK giant HSBC were fined hundreds of millions of dollars for their troubles.
The banks are not just helping their clients evade taxes. In a report titled Opening the Vaults, UK-based charity Oxfam International revealed this week that in 2015, Europe’s 20 largest banks registered

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Here’s Why Italy’s Banking Crisis Has Gone Off the Radar

26 days ago

Just how many banks are insolvent? Turns out, a lot! But elections are coming up.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
For a country that is on the brink of a gargantuan public bailout of its toxic-loan riddled banking sector, or failing that, a full-blown financial crisis that could bring down the European financial system, things are eerily quiet in Italy these days. It’s almost as if the more serious the crisis gets, the less we hear about it — otherwise, investors and voters might get spooked. And elections are coming up.
But an article published in the financial section of Italian daily Il Sole lays out just how serious the situation has become. According to new research by Italian investment bank Mediobanca, 114 of the close to 500 banks in Italy have “Texas

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Shock, Horror: ECB Not as “Independent” as it Claims – Report

27 days ago

Transparency International whacks at a central bank.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
The European Central Bank has found itself in the rare position of having to defend itself in the public arena following the release of a scathing report on its perceived lack of political independence. The report, published by anti-corruption watchdog Transparency International, argues that the institution has accrued new power and influence in the wake of the financial crisis but its code of conduct has not kept up with that newfound clout.
It even suggests that the ECB should withdraw from the Eurozone’s Troika of creditors, precisely at a time that calls are rising for the creation of a European Monetary Fund.
“The extraordinary measures taken by the ECB since 2008 have

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Italy at the Grim Edge of a Global Problem

March 25, 2017

This trend is not your friend.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
To be young, gifted, educated and Italian is no guarantee of financial security these days. As a new report by the Bruno Visentini Foundation shows, the average 20-year-old will have 18 years to wait before living independently — meaning, among other things, having a home, a steady income, and the ability to support a family. That’s almost twice as long as it took Italians who turned 20 in 2004.
A Worsening Trend
Eurostat statistics in October 2016 showed that less than a third of under-35s in Italy had left their parental home, a figure 20 percentage points higher than the European average. The trend is expected to worsen as the economy continues to struggle. Researchers said that for Italians

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Eurozone Whistles Past its Biggest Threat

March 24, 2017

Italy’s Multi-Headed Hydra Predicament.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
For the last three years, the political establishment in Italy and beyond have had a field day attacking, ridiculing, and vilifying Beppe Grillo’s 5-star movement. Europe’s media have tarred him with the brush of populism. In 2013 The Economist labelled him a clown on its front cover. Yet his party still leads the polls. And that lead is growing.
A new Ipsos poll in Corriere della Sera newspaper has put Beppe Grillo’s 5-Star Movement on 32.3% – its highest ever reading. It placed 5.5 points ahead of the governing PD, on 26.8%, after the PD dropped more than three percentage points in a month, as former prime minister Matteo Renzi battles to reassert his authority following a walkout by a

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One Sole Aim: “Steal Away” Global Finance from London

March 22, 2017

Just How Low Can European Governments Go?
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
City of London-based financial institutions are intensifying their search for plan-B locations as concerns continue to rise about Brexit’s potential threat to their unfettered access to EU markets and workers. With an estimated 35% of London’s wholesale market activities forecast (by Brussels-based think-tank Breugel) to migrate across the English Channel in the coming years, the race is on to displace London.
However, as the competition for Brexit spoils intensifies, relations between euro nations are showing signs of strain. Tax-haven par excellence Luxembourg, equipped with a multi-lingual specialized workforce, is likely to be hot property in a post-Brexit world. The country’s

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Deepening EU Banking Crisis Meets Euro-TARP and Taxpayers

March 17, 2017

If the ECB scales back stimulus, banks face even greater risk of collapse. But now there’s a new solution.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Events are moving so fast in Europe these days, it’s almost impossible to keep up. While much of the attention is being hogged by political developments, including the election in the Netherlands, Reuters published a report warning that the European banking sector may face even higher bad loan risks if the ECB begins to scale back its monetary stimulus programs, something it has already begun, albeit extremely tentatively.
The total stock of non-performing loans (NPL) in the EU is estimated at over €1 trillion, or 5.4% of total loans, a ratio three times higher than in other major regions of the world.
On a

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ECB Trapped in its Own “Doom Loop” as Inflation Surges

March 16, 2017

Trying to keep a financial system and a currency union from collapsing upon each other.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
To the ECB’s barely contained glee, inflation is back, alive, kicking and biting, in the Eurozone. In February, for the first time in four years, the region-wide 12-month inflation rate reached 2%.
Mario Draghi is thrilled to bits. After five years of driving interest rates to ungodly low levels, offering billions of euros of virtually free loans to Europe’s biggest banks, and scooping up tens of billions of euros per month of government and private-sector bonds and stuffing them onto the ECB’s balance sheet, which now holds €3.7 trillion of financial assets, he has finally achieved his dream of stoking official inflation back above 2%.

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Are Germans About to Be Made to Pay for Their Love of Cash?

March 12, 2017

The ECB would do so at its own peril.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Germany loves physical money. According to a Bundesbank study, approximately 80% of payments in Germany are made in cash. Even among millennials, two-thirds say they prefer paying in cash to electronic means, a much higher level than in almost any other advanced economy with the exception of Japan.
This is a big problem for a European establishment that is desperate to consign physical money to the scrap heap. Some countries, including France and Spain, have already set maximum cash limits of €1,000. Greece has dropped its cap for cash transactions from €1,500 to €500.
In January the European Commission telegraphed its intention to implement a mandatory continent-wide limit by 2018, even if

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Are We About to See a “European Monetary Fund?”

March 9, 2017

There’s an air of furtive desperation about the proceedings.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
As debates rage in Europe over whether or not to take a two-speed or multi-speed approach to post-Brexit integration, Germany rekindled interest in the creation of a European Monetary Fund.
Chancellor Angela Merkel and Finance Minister Wolfgang Schäuble both want to upgrade the grossly unaccountable Luxembourg-based European Stability Mechanism (ESM) into an IMF-style rescue fund that will “be granted the authority to monitor the finances of all eurozone countries,” reports Der Tagesspiegel.
EU Monetary Commissioner (and former French finance minister) Pierre Moscovici is against it, for a simple reason: monitoring budgetary policy in the euro area is, for the moment,

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Definition of Madness: Spain Needs Bigger Banks, Apparently

March 6, 2017

Not having learned a thing from merged banks that then collapsed.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Spain’s banking sector is about to be hit by a new wave of mergers and acquisitions, according to US rating agency Standard & Poor’s. The new phase of industry consolidation will begin with the stealth merger of largely state-owned Bankia with wholly state-owned Banco Mare Nostrum (BMN).
The two banks, each the product of two madcap mergers of Spain’s most insolvent savings banks, will be merged into one entity that is expected to become Spain’s fourth biggest bank by assets. The merger is more or less a done deal, for the simple reason that besides Bankia, BMN has no other suitors and its IPO last year was a complete dud. No private sector player seems willing

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Is Mexico Facing “Liquidity Problems?”

March 5, 2017

When it comes to debt, everything is relative, especially if you don’t have a reserve-currency-denominated printing press.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
At 49% of GDP, Mexico’s public debt may seem pretty low by today’s inflated standards. It’s a mere fraction of the debt loads amassed by bigger, richer economies such as Japan (229% of GDP), Italy (133%) and the United States (104%). But when it comes to debt, everything is relative, especially if you don’t enjoy the benefits that come from having a reserve-currency-denominated printing press.
In Mexico’s case it’s not so much the size of the debt that matters; it’s the rate of its growth. In the year 2000 the country had a perfectly manageable debt load of roughly 20% of GDP. Today, it is two and a half

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Euro Breakup Rattles Investors Once Again

March 1, 2017

Only this time, the ECB is already doing “whatever it takes.”
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
With hotly contested general elections coming up in France, Germany, and Holland – where yet another upset could be on the cards – 2017 was always going to be a nail-biter for the Eurozone. That was before former Italian PM Matteo Renzi raised the prospects of fresh elections in the home of electoral chaos, Italy.
And investors’ nerves are fraying. The spread between the 10-year yields of French government debt and German government debt has already widened from 0.28% in October to 0.81% today in anticipation of French elections, to be held in April. According to Frankfurt-based Sentix research group, the probability that France could fracture the euro is also

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Is that Desperation Hanging Over Europe’s Banking System?

February 26, 2017

Turns out, Italy’s banking crisis is not fixed.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Many of Europe’s and America’s biggest banks have begun begging, cap in hand, for a new, innovative way of raising vast sums of dirt-cheap debt on Europe’s financial markets.
The Association for Financial Markets in Europe (AFMA), an organization that prides itself on serving as “the voice of Europe’s wholesale financial markets,” just sent a strongly worded letter to the European Central Bank, urging for the prompt creation of EU-wide regulation allowing banks to sell a newfangled class of bail-in-able debt called “senior non-preferred bonds.”
“A swift agreement is essential to enable banks to continue increasing their loss-absorbing cushions and improve their resolution

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Former IMF Chief and Dozens of Former Bank Execs Just Got Sentenced to Jail

February 24, 2017

But will they actually warm a bench in a Spanish prison?
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
The unimaginable just happened in Spain: two former bank CEOs, Miguel Blesa (CEO of Caja Madrid) and Rodrigo Rato (CEO of Bankia) were just awarded prison sentences of six years and four-and-a-half years, respectively, for misappropriation of company funds.
Rato was also Managing Director of the IMF from 2004 to 2007. He was succeeded by another luminary, Dominique Strauss Kahn.
Now, the question on everyone’s mind is will Blesa and Rato actually serve the sentence (more on that later).
Dozens more former Caja Madrid senior executives, most of whom are closely connected to either, or both, of the country’s two main political parties and/or unions also face three to six

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The Unthinkable Just Happened in Spain

February 18, 2017

Six central bankers and a financial regulator get dragged to court
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Untouchable. Inviolable. Immunity. Impunity. These are the sort of words and expressions that are often associated with senior central bankers, who are, by law, able to operate more or less above the law of the jurisdictions in which they operate.
Rarely heard in association with senior central bankers are words or expressions like “accused”, “charged” or “under investigation.” But in Spain this week a court broke with that tradition, in emphatic style.
As part of the epic, multi-year criminal investigation into the doomed IPO of Spain’s frankenbank Bankia – which had been assembled from the festering corpses of seven already defunct saving banks – Spain’s

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Biggest EU Banks Embark on the Mother of All Debt Binges

February 14, 2017

A hot new bail-in-able debt cooked up by financial engineers in France
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Spain’s three biggest banks, Banco Santander, BBVA and Caixa Bank, have got off to a flying start this year having issued €8.6 billion in new debt, seven times the amount they sold during the same period of last year. The last time they rolled out so much debt so quickly was in 2007, the year that Spain’s spectacular real estate bubble reached its climactic peak.
Santander accounts for well over half of the new debt issued, with €5.12 billion of senior bonds, subordinate bonds, and a newfangled class of bail-in-able debt with the name of “senior non-preferred bonds” (A.K.A. senior junior, senior subordinated or Tier 3) that we covered in some detail just

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Kamikaze Economics with Slow-Motion Debt Crash

February 11, 2017

Wee bit of Contagion? Catalonian default will be seen as Spanish default: Moody’s
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
“An impending train crash.” Those are the words increasingly being used to describe Madrid’s seemingly intractable conflict with Spain’s separatist north-eastern region of Catalonia. The latest flashpoint in tensions is the political show trial of Catalonia’s former president, Artur Mas, and two other Catalan politicians for their role in organizing a purely symbolic, non-binding referendum on national independence in November, 2014.
Mas has been charged with serious disobedience and other crimes for ignoring a court injunction against the unofficial vote, which the central government in Madrid considered illegal. If found guilty he could be

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Italy’s Banking Crisis Is Even Worse Than We Thought

February 8, 2017

The insider blame game has begun.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
In this late winter of generalized discontent, it is not easy to pinpoint just where the biggest threat to Europe’s increasingly flimsy union lies, so intense is the competition. One obvious contender is the Eurozone’s third largest economy, Italy, which faces a banking crisis, an economic crisis, a debt crisis, and a political crisis all at the same time.
The country’s Five Star Movement is gaining momentum both in the polls and in its efforts to call for a referendum on euro membership. In the meantime, Italy’s newly installed government wants — indeed, needs — to bail out a growing number of banks but has neither the money nor the political capital to do so.
Things had gotten so bad that the

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Italy’s “Bad Banks,” Created to Save the Financial System, Are Themselves on Verge of Collapse

February 4, 2017

“The €20 billion the government has set aside is starting to look like small beer.”
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Officially dubbed “Bad Banks” — not to be confused with the plain-vanilla bad banks that brought the global financial system to the brink of meltdown — are all the rage these days, particularly in bad-loan-infested Europe. And if the European Central Bank gets its way, their numbers could be set to expand even further. On Friday, ECB Vice President Vitor Constancio called for the creation of a whole new class of government-backed bad banks to help buy some of the €1 trillion in unpaid loans that have weighed on Eurozone banks since the financial crisis.
Here’s how it would work: the already deeply indebted governments in question would issue a

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It’s Time We Talked About Our Owners

February 2, 2017

How vast asset managers impact “our increasingly cartelized economy.”
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
The world’s biggest asset manager, BlackRock, was splashed across the front pages of the Spanish financial news yesterday. The firm had just raised raised its stake in Spain’s telecoms giant Telefónica to 336 million shares — the equivalent of 6.7% of Telefónica’s total capital, with a market value of just under €3 billion.
In the short space of five months BlackRock has almost doubled its holdings and is now the largest owner of Telefónica stock, ahead of Spain’s second biggest bank, BBVA, which holds 6% of the shares. The asset manager has also expanded its participation in Telefónica’s international subsidiaries, raising its holdings in Telefónica

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Is Italy’s Banking Problem Becoming Too Big to Solve?

January 30, 2017

They said it was contained, but now it hit the largest bank.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
Ever since the European Commission and ECB jointly decided that Italy’s government could bend EU banking rules out of all recognition in order to bail out the country’s third largest bank, Monte dei Paschi di Siena, Europe’s financial stocks have been on a tear. But the good times were brought to a grinding halt Monday after Italy’s largest bank, Unicredit, which employs 55,000 people in 17 countries, announced losses for 2016 of €11.8 billion.
By the bank’s logic, it would have announced profits if it hadn’t had to write off €12.2 billion, including billions of euros of non-performing loans (NPLs) festering on its balance sheets.
But it got worse. In the registration

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Things Just Got Serious in Europe’s War on Cash

January 28, 2017

To protect citizens from threats as defined by apparatchiks in Brussels.
By Don Quijones, Spain & Mexico, editor at WOLF STREET.
The central authorities in Europe just launched their most important offensive to date in their multiyear War on Cash. The new move comes directly from the European Union’s executive branch, the European Commission, which just announced its intention to “explore the relevance of potential upper limits to cash payments,” with a view to implementing cross-regional measures in 2018.
Maximum limits on cash transactions already exist in most European countries, and the general trend is downward. Last year, Spain joined France in placing a €1,000 maximum on cash payments. Greece went one better, dropping its cap for cash transactions from €1,500 to €500. In

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