Turkish state-owned banks and subsidiaries of European banks on the hot seat.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Sales of homes of all types in Turkey plunged 31% year-on-year in May to just 82,252 units, after having already plunged 18% year-over-year in April, according to the Turkish Statistical Institute. It was the sharpest year-over-year drop in the data going back to 2013, as Turkey’s economic crisis continues to bite. For the first five months of 2019, home sales dropped 19% compared to the same period last year, to 423,088 units.
The six-month moving average, which reduces the large seasonal and month-to-month swings of home sales in Turkey, dropped to the lowest levels since 2013-2014:

In terms of new homes, sales crashed 39% in May compared to

The Brazilian conglomerate’s rot was uncovered by Operation Car Wash that resulted in the imprisonment of political and business figures across Latin America, including Brazil’s former richest man, Eike Batista.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
After years of graft probes that have tarnished governments throughout Latin America and left a trail of economic destruction in their wake, Brazilian conglomerate Odebrecht SA announced on Monday it was filing for bankruptcy protection. The company aims to restructure debts of 51 billion reais ($13 billion). But as Bloomberg points out, it has total inter-company loans and other debts estimated to be worth 98.5 billion reais ($25.3 billion), which is enough to make Odebrecht’s bankruptcy filing the largest in

NPLs remain dangerously to catastrophically high in Italy, Greece, Portugal, and Cyprus.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The bad-debt problem at banks in the Eurozone, an ongoing legacy of cascading loan defaults during the last financial crisis, may have grown smaller overall in recent years but it’s still a major cause for concern. That was the basic thrust of a speech delivered by Andrea Enria, Chair of the Supervisory Board of the ECB, on Friday. And these bad loans remain dangerously to catastrophically high in several countries, including Italy, Greece, Portugal, and Cyprus.
Over the past five years the total stock of non-performing loans (NPLs) on the balance sheets of Eurozone banks has fallen from just over €1 trillion to €580 billion. During

But it helped high-income people buy homes.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The UK’s government’s flagship “Help to Buy” equity loan scheme, launched ostensibly to give cash-strapped first-time buyers a leg up onto the property ladder, has dished out billions of pounds of publicly subsidized loans to relatively well heeled homeowners who were perfectly capable of buying their first property without need for outside help, asserts a new report by the National Audit Office (NAO).
The report, which used figures supplied by the Ministry of Housing, Communities and Local Government, found that only 37% of the roughly 210,000 people who have so far benefited from Help to Buy would not have been able to afford a property without it. Since the scheme is not means

It was a doozie, but it shouldn’t have come as a surprise. Here’s why.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Production output in the UK dropped by 2.7% in April from March, and GDP fell by 0.4% in just one month, according to the latest figures by the Office of National Statistics. The manufacturing sector provided the largest contribution to the downturn, with the manufacturing index plunging 3.9% in April, from March, its biggest monthly fall since June 2002. In April, after three months of sharp increases, it had almost finally reached its pre-Financial-Crisis peak. The plunge in April took the index down 0.8% for the 12-month period, and took it back to 2017 levels.

The data was seized upon by pro-remain media outlets as evidence of the crushing impact

President of Mexico not amused: “In three years there was no investment in exploration, no investment in drilling wells, and they rated Pemex very highly. Now that there is investment, they downgrade Pemex.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
After months of firing warning shots, one of the big three ratings agencies, Fitch Ratings, has downgraded to “junk” (BB+) about $80 billion of Pemex debt — much of it denominated in US dollars and held externally — and maintained its ‘negative’ rating outlook, meaning another downgrade is likely. The company is owned by Mexico. Moody’s lowered its outlook for Pemex to negative from stable.
The day before, Fitch downgraded Mexico’s sovereign debt to ‘BBB’  — only a couple of notches above junk. On the same day, Moody’s

Kier shares are one of the biggest holdings of Woodford Equity Income fund.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
UK construction and services giant Kier Group, with 20,000 employees, is on the ropes after issuing a profit warning, amid worries about its debt, that sent its shares spiraling down 40% on Monday and a further 2% on Tuesday, and another 4% so far today to 154 pence. The stock is down 56% over the past month and 85% over the past year and is now worth less than the price it opened at on its first day of trading back in December 1996.
Kier is one of the UK government’s top external suppliers of public services. It builds and maintains highways, railway tunnels and houses, among many other things. It even fixes domestic plumbing for local

His lawyer suggests if the price is too high, he may be willing to take his friend, former president of Mexico, down with him.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Emilio Lozoya, a former chief executive of state oil company Petróleos Mexicanos (Pemex), was issued with an arrest warrant on Wednesday for financial irregularities, in particular his alleged dealings with scandal-plagued Brazilian construction firm Odebrecht.
Lozoya, formerly a one-time senior election campaign advisor to Mexico’s current president, Enrique Peña Nieto, is accused of receiving “tips” from Odebrecht worth some $10 million in exchange for his support in obtaining public work contracts. The money allegedly passed through shell companies in the British Virgin Islands before coming to

What to do with those messy banks ignites further tensions.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The Italia All Share Banks Index dropped 18% so far in May, almost double the 10% fall registered by the Euro Stoxx 600 banking index during the same period:

Italy’s biggest bank, Unicredit, saw its shares fall through the €10 level for the third time this year. The stock has lost 20% of its value in May, and is close to its all-time low, registered in July 2016 when Italy’s banking system was being shaken and stirred by the slow-motion collapse of then-third largest lender Monte dei Paschi di Siena (MPS). Unicredit’s shares are down 97% since the Italian banking-hype peak in May 2007.
MPS, now 68% state owned following a controversial taxpayer funded bailout in

China deliveries in its fiscal year: -34%. And not getting better: in April, -45%.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Britain’s largest automaker, Jaguar Land Rover (JLR), owned by  India’s Tata Motors, plunged £3.6 billion into the red in its fiscal year 2018, ended March 31, as the financial fallout from slumping Chinese demand and sinking diesel sales in the UK and Europe took its toll. It was the company’s biggest ever annual loss. Global retail deliveries fell 5.8% to 578,900 vehicles, and global revenues fell 6.1% to £24.2 billion.
Investors in Tata Motors had already been expecting the worst, because the worst of the news had already been telegraphed in February, when JLR posted a gargantuan £3.4 billion loss for the third quarter of its fiscal year

Citi Group analysts slashed their price target to zero.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The shares of 178-year-old British global travel company Thomas Cook are in free fall, tumbling 10% on Thursday and another 40% today, after it issued a zinger of a profit warning for the second half of its fiscal year — the third profit warning in less than a year — and announced a £1.46 billion loss before taxes for its fiscal first half, ended March 31. It also unveiled a 12% slump in tour operator bookings, and a 37% rise in net debt.
The company’s shares are now worth just 11 pence a piece, down 92% from 130 pence a year ago. At that time, Thomas Cook Group was worth £2.5 billion. Today, its worth a couple of hundred million.
Citi Group analysts said first thing

Like the mortgage crisis never happened.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
As the UK housing market is facing serious challenges, a high-risk relic of the last housing bubble is staging a big comeback: the interest-only mortgage. This financial product, often held up as the epitome of irresponsible lending, is hitting the market at a faster rate than at any time since the 2008 financial crisis.There are now 193 of these mortgage products available — almost double the 102 that existed six years ago.
With these mortgages, the borrower pays only the interest on the loan but makes no principal payments, and therefore doesn’t built up equity in the property. At the end of the loan’s term, the full balance becomes due all at once. Borrowers are supposed to have

This time it’s about the safe deposit boxes at Metro Bank.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Shares in Metro Bank, until recently the UK’s fastest growing high street lender, slumped 11% on Monday to £4.75, the lowest level since the bank went public back in 2016. Metro’s shares have lost almost three-quarters of their value since January, when the lender first revealed it was seeking to raise fresh capital following a very costly accounting blunder. They have now collapsed by 84% from March last year.
The latest rout comes on the heels of news over the weekend that hundreds of customers asked to withdraw money and items from safe deposit boxes after a series of warnings on Whatsapp. On Saturday, queues formed at a number of Metro Bank branches in London,

Chinese corporate defaults this year through April are 3.4 times the amount last year.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Since the global financial crisis, the total value of outstanding corporate bonds has doubled, from around $37 trillion in 2008 to over $75 trillion today. But the growth has been far from even, with non-financial debt growing much more rapidly in certain jurisdictions. As the volume and price of this debt has grown, so too has its riskiness. And that could be a recipe for disaster, warns Sir John Cunliffe, deputy governor for financial stability at the Bank of England.
In the US, non-financial debt is up 40% on the last peak in 2008. Cunliffe expressed even greater caution concerning emerging markets, where corporate debt as a

“Zombie firms,” kept alive by low interest rates, account for up to 14% of UK companies.  
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The number of companies in the UK going into administration — which is when a licensed insolvency “administrator” is appointed to manage a company’s affairs, business, and property for the benefit of the creditors — jumped by 21.8% in Q1 2019 to 451, the highest quarterly level in five years (although the number of administrations is still much lower than during and after the Financial Crisis).
In Q1, the number of small businesses going into liquidation rose 5.1% compared to the same period a year ago, to 4,187. Liquidations also rose  6.3% from the fourth quarter of 2018, according to The UK Insolvency Service.
“Both the total

More and more companies either choose not to invest in other countries or are prevented from doing so.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Global foreign direct investment flows plunged by another 27% in 2018 — after having already plunged 16% in 2017 — to just $1.1 trillion, the equivalent of 1.3% of global GDP, the lowest ratio since 1999, according to new data released by the OECD. It was the third consecutive annual plunge in global FDI flows, as more and more companies either choose not to invest in businesses or assets in other countries or are prevented from doing so.
At the peak in 2015, before the trade wars began, before the Brexit vote happened, and before China began cracking down on the capital outflows that had fueled big-ticket purchases of

“The worst labor market” on the planet: unemployment exceeded 20% in three downturns over the past 35 years.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Spain’s unemployment rate ticked up by a quarter percentage point to 14.7% in the first quarter of 2019, when economists had expected a down tick, as the number of people claiming unemployment benefits increased by 50,000 to 3.35 million, according to data released by the National Statistics Institute (INE). Although it’s not unusual for unemployment in Spain to tick up during the first quarter, this is the biggest quarter-on-quarter increase in six years and it highlights a persistent weak link in an economy that has done nothing but grow since late 2013.
The biggest job losses were registered in the services

16% of the 4 million new vehicles sold in the US in Q1 were assembled in Mexico.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The total number of new vehicles exported from Mexico to the US in the first quarter of 2019 surged 10.1% to 658,243 vehicles, according to figures compiled by the vehicle manufacturers association AIMA and released by Mexico’s National Institute of Statistics and Geography (INEGI). It’s all about “trucks”: 63% of these vehicles were “trucks” — pickups, SUVs, crossovers, and minivans. This Q1 surge in exports to the US comes despite the 3.2% decline in auto sales in the US.
In the last eight years, Mexico’s auto exports to the US have doubled, from 1.3 million in 2011 to 2.6 million in 2018, at annual growth rates between 6.3% and 13.9%. If Q1

February was bad. Housing market weakness is now spreading out from London.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
London home prices in February took their biggest one-off hit since the dark days of the last crisis, according to data published Thursday by the UK’s Office of National Statistics. The average price of a residential property in London tumbled 2% in February from January, the sharpest monthly drop since November 2008, when the City was grappling with the fallout from the Lehman Brothers bankruptcy. For the 12-month period, the average price dropped 3.8%, the sharpest year-over-year fall since August 2009, during the Global Financial Crisis. The average home in London is now worth £459,800 ($600,000), down 5.9% from the peak in July 2017:

But it’s

Spanish banks expanded aggressively into Emerging Markets to flee the consequences of the euro debt crisis.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
UBS has alerted that Spanish banks’ outsized exposure to Latin American markets could serve as a source of contagion for future crises: 80% of the Eurozone’s total banking exposure to the region is channeled through Spain whose banks have around €384 billion of counterparty claims in the region.
A ‘shock’ in emerging and developing markets could also drag down the Eurozone economy, UBS said. Spanish banks’ exposure to Latin America is equivalent to around 30% of Spain’s GDP and leaves both the country and the Eurozone susceptible to contagion effects from a crisis emerging in any of the major contingent economies,

“Once. Only this year. Later on, that’s their problem”: Finance Minister. $3.4 billion in fuel was stolen in 2018, including by insiders. Crackdown now underway.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
After years of falling production, compounding losses, and plunging credit ratings, Pemex, the world’s most indebted oil company, is not in a fit enough shape to issue new debt. That’s the dire assessment of the Mexican government, which on Friday announced that it was extending its embattled state oil company yet another financial lifeline, this time worth 107 billion pesos ($5.7 billion).
It’s a drop in the ocean compared to the $106 billion of total debt Pemex owes its creditors. But it should be enough to tide the company over at least for the rest of this

Italy’s fiscal health is once again in serious decline.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
On Wednesday, Italy’s coalition government slashed its growth forecast for the Italian economy in 2019 to 0.2% – the weakest forecast in the Eurozone – from a previous forecast of 1%. Italy is already in a technical recession after chalking up two straight quarters of negative GDP growth in the second half of 2018.
The government’s budget for this year was based on the assumption that the economy would expand by 1% this year. Now, it seems the economy may not grow at all; it could even shrink.
One direct result of this is that Italy’s current account deficit for 2019 will be substantially higher than the 2.04% of GDP Italy’s government pledged to stick to late last

“The traditional private equity model should have no place in retail.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Shares of UK-based multinational department store Debenhams — with 165 stores in the UK and Ireland and with 58 franchise stores in 19 other countries — were suspended today after the company and its creditors turned down two last ditch rescue offers from discount retail group Sports Direct, which owns close to 30% of Debenhams’ stock. Debenham’s shares have collapsed spectacularly since they were floated on the stock market in 2006 by its then-private equity owners, Texas Pacific Group, CVC, and Merrill Lynch Private Equity:

The latest rejection means that Debenhams, after gracing British high streets for over 200 years, now faces a “pre-pack”

But “superminis” are hot.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Sales of new passenger vehicles, as measured by registrations, fell 3.4% in March from a year earlier in the UK, the second largest auto market in Europe, as consumers shunned showrooms during what’s usually a bumper month for sales due to a number plate changeover, according to the the Society of Motor Manufacturers and Traders (SMMT). Total sales in March of 458,054 vehicles was the worst performance in March since 2013.
Sales in the first quarter of 2019 dropped 2.4% from Q1 2018. But Q1 2018 had been a terrible quarter, when sales had plunged 12.4% from Q1 2017. So in Q1 this year, sales were down 14.5% from Q1 2017 and were close to where they had last been in Q1 2014:

“March is a key

Opposition Is Growing to Merger Between Deutsche Bank and Commerzbank.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
The chief executive of eternally troubled Too-Big-To-Fail Deutsche Bank, Christian Sewing, believes the time is ripe for a merger with its national rival, Commerzbank, Germany’s two biggest, most dangerous lenders. So, too does his counterpart at Commerzbank, as does US private equity firm Cerberus, which owns 3% of Deutsche Bank and 5% of Commerzbank.
Germany’s Finance Minister and card-carrying social democrat Olaf Scholz is also firmly on board. Indeed, many say that he’s the one leading the charge despite the tens of thousands of job losses a merger between the two banks is guaranteed to produce. Scholz’s deputy, Joerg Kukies, has courted

“In addition to uncertainty about what’s going to happen, now there’s uncertainty about when it will happen.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
With each passing day, the fog of uncertainty surrounding Brexit thickens, with myriad knock-on effects for businesses on both sides of the English Channel. “Companies no longer have any idea what they should be preparing for,” Martin Wansleben, executive director of the German Chambers of Industry and Commerce (DIHK), told the Funke Mediengruppe newspaper chain. “In addition to uncertainty about what is going to happen, now there’s uncertainty about when it will happen.”
The UK parliament’s advisory non-binding votes of the past week to seek to delay the country’s departure from the European Union and reject any

Shareholders wiped out, 14 Months after competitor Carillion Collapsed.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Shares in UK outsourcing giant Interserve, which employs over 65,000 people worldwide including 45,000 in the UK, were suspended today after almost 60% of the firm’s shareholders, led by the US hedge fund Coltrane Asset Management, rejected a last-ditch debt-for-equity swap with Interserve’s creditors that would have diluted the shares of current stockholders to nearly nothing, leaving them just 5%. The company has thousands of government contracts, including for hospital cleaning, probation services, school meals and the maintenance of military bases.
Interserve now faces a “pre-pack” administration that — it is hoped — will see its various divisions

“Serious risks of sleepwalking into a cashless society before we’re ready – not just to individuals, but to society.”
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Ten years ago, six out of every ten transactions in the UK were done in cash. Now it’s just three in ten. And in fifteen years’ time, it could be as low as one in ten, reports the final edition of the Access to Cash Review. Commissioned as a response to the rapid decline in cash use in the UK and funded by LINK, the UK’s largest cash network, the review concludes that the UK is not nearly ready to go fully cashless, with an estimated 17% of the population – over 8 million adults – projected to struggle to cope if it did.
Although the amount of cash in circulation in the UK has surged in the last 10 years

The banks claim they’re complying with anti-money laundering regulations. 
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Spain’s Association of Financial Users (ASUFIN) has announced it will be representing Chinese residents in Spain in their legal struggle against three of the country’s biggest lenders, BBVA, Caixabank and Bankia, which it accuses of contravening Spain’s data protection and consumer protection laws and even the Spanish constitution.
The three banks in question recently froze the accounts of thousands of Chinese residents in Spain for almost two weeks, in accordance — or so the banks claim — with Spain’s money laundering regulations. On Feb 15, after weeks of being locked out of their accounts, feelings finally boiled over and hundreds of Chinese

While contagion is definitely contained, the Eurozone “is not sufficiently armed to face a new economic or financial crisis.” French banks are heavily exposed to Italy.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
“Don’t underestimate the impact of the Italian recession.” This was the stark warning from French Economy Minister Bruno Le Marie in an interview with Bloomberg News. “We talk a lot about Brexit, but we don’t talk much about an Italian recession that will have a significant impact on growth in Europe and can impact France because it’s one of our most important trading partners.”
Italy’s economy as measured in real GDP shrank for two quarters in a row, which puts it into a “technical recession”:

It’s the second time in four months that France’s Economy