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Wednesday, 14 January 2015

The Capital increase in Banco Santander was essential in terms of Solvency

She makes decision with a steady hand. Since Ana Patricia Botín took command of Banco Santander, it has become clear that she is a woman of clear ideas, you know, dismissal of former CEO, Javier Marín, and Rodrigo Rato and very recently the last and powerful capital increase needed to meet future requirements penalizing significantly to small shareholders. As an analyst  (good or bad analyst, it depends on your estimates, dear reader), I am going to try to synthesize the reasons and consequences of this measure.

First, it is a necessary measure. The SSM (Single Supervisory Mechanism) and its president, Danièle Nouy, seem to be clear that any systemic bank or 'too-big-to-fail' bank should have a capitalization higher than 10% of its balance. Moreover, this requisite seems an essential requirement, and Banco Santander knows it. Keep in mind that many companies still treat certain 'concepts' as Capital, and these concepts should be eliminated in 2019, so you know, the real solvency of many European banks is not what it appears. Basel III imposes very strict standards that many banks have to undertake in the short term because the most important issue for the ECB - today - is the Capital. Capital and Capital. Only the Capital. Solvency.

Solvency is a term that inspires confidence to customers, but also to markets. A solvent bank is able to withstand economic crisis but also, a solvent bank can more easily undertake purchases of other banks. Therefore, some think that this capital increase is a warning to future potential acquisitions, though I think and reiterate that the most important issue is to withstand the crisis - is not over -, and I think Ana Patricia Botín will not make any purchase in the short term. It would be a little daring penalize shareholders to buy another bank, right?

Everyone (yes, you) prefers solvents banks. But who should pay the price for these recapitalizations? As usual, someone does it well and someone does it wrong. And this time, Banco Santander did it well: the shareholders are the owners of the Bank and must bear the capital risk. So chapeau!. I know Mr. Shareholder: your share has been diluted by 10% and the dividend has been reduced to € 0.20 per share, but difficult times require bold solutions. Dear Shareholder, think in the shareholders of Bankia or those that were fooled with unrecoverable preferred participations ... And finally, Shareholder of Banco Santander: A more solvent and strong Banco Santander will regain its value.

But yes, all erroneous and fraudulent actions taken in the spanish banking sector in recent years must be severely punished. Likewise, citizens expect more positive moves, you know, a more humane Banking, because this crisis has been a missed opportunity to change nineteenth-century mortgage and credit laws.

This will be your next national challenge, Mrs. Botín. Your bank must take a step forward to create a more humane Banking business and should encourage the change of this legislation. If you do so, this change would be a brilliant manoeuvre in favour of Banco Santander, and would strengthen its leadership position. If you do not so, the legislation will change, because it is just a matter of time. I hope so, for everyone's sake...

Friday, 28 November 2014

Competitiveness and the mediocrity of the Spanish economic model

Translation of my original article in spanish economic blog El Captor:

Much has been written about the lack of competitiveness of the Spanish business fabric and its discrete level of exports relative to other economies of similar size. The reality is not as bad as some people would have us believe, but all correlation of two variables always has a dual interpretation. Note this graph:

Exports to GPB (%)
Source: World Bank

Spanish figures does not seem too bad, we export more than France, Italy and Greece, at least in relation to GDP. At first glance, it seems that the situation has improved, but the double interpretation may reflect that this growth is a mere mirage, because we really export a little more, but our GDP is much lower. You know, numerator and denominator. Mathematics are well playful ...

I wanted to show you this example as an introduction before speaking about labour productivity. What does labour productivity means? The International Labour Organization has several definitions, but the commonly accepted, at least in this country called Spain, is as follows: 

Labour Productivity = Total Production of Goods and Services / Total Salaries

Damn! Numerator and Denominator, again ... This simple ratio represents the whole economic model of a country, and as usual ... Spain is Spain.

Right. What does competitiveness mean? Easy, it is the ability to compete, either by price or by innovation. Spain is Spain, again ...

"We need to increase productivity and competitiveness" they said, and they have forced us to take the easiest route: lets take an axe to wages, and voilà! we are already productive and competitive.

And yes, we are productive, but are mediocre. We are mediocre because instead of investing in R & D, training employees and retaining talent in order to improve, grow and produce more and better (increasing the numerator of the definition of productivity), we opted for precarious contracts, unworthy salaries, job insecurity and underemployment (reducing the denominator). How cold, wise the mathematics are! Spain is towards mediocrity today.

At the beginning of November, there were 4,526,804 unemployed in Spain. But also 5,752,040 workers earn 600 euros per month. In short, 10,278,844 people, with name, with family, who only want to work with dignity, cannot consume nothing in Christmas time. 55% of working-age Spaniards cannot consume.

As Keynesian, I firmly believe that the demand and consumption are the engine of the economy. With this disturbing figures and these policies, the engine is not only seized up: There is no reasonable way to overcome this crisis. We need growth policies, wage increase and retain talent immediately, or the painful economic stagnation is inevitable. It is being warned in time...

Monday, 17 November 2014

FT: Sales tax tips Japan back into recession

Hi my friends! Being unemployed (again) is a great oportunity to give a new impetus to my blog...it's a good excuse to be active!

Today's post is a new example of how tax increase and constricting measures contribute to a deeper crisis.

How about Japan?  Well, as you know, Japanese economy is totally stagnated for too long... and using measure like this, it does not surprise me...

In FT today's edition, we can read "Japan’s economy tipped into a technical recession following a jump in consumption taxes in April, making it a near-certainty that prime minister Shinzo Abe will delay another increase while appealing for a fresh mandate via a snap election.". Read full article here.

(Pics from ft.com)

Yes! Be happy! Increasing taxes on consumption is the worst way to boost an economy!

Stop the world, I want to get off!


Friday, 14 November 2014

Europe reneges on Keynesian policies and slides towards third recession

Hi my friends! Are you all okay? Sure! Well, today I have posted an interesting article in El Captor. El Captor (http://www.elcaptor.com) is one of the leaders in the spanish-speaking specialized blogs in Economy. I'm proud that this renowned blog asked me an article!

I'm going to translate it. Thanks everybody! (Read the original here)

Just as we respect the grandparents for their wisdom and experience, we should respect the experience gained in previous crises. Everyone knows except those who govern today in Europe, that the only way to overcome the crisis is providing liquidity to the system, using an expansionary fiscal policy. Everyone knows (even the tobacconist in the corner), that consumption is the motor of any economy. In fact, no crisis has been overcome without encouraging consumption. Never.

However, here we are in year 6 of the greatest economic and financial crisis in History, just surviving, and worst of all, no sign of improvement. Yes, of course! Spain was different, we had the housing bubble and we lived beyond our means - official rhetoric dixit -.

Well, look, no. The housing bubble was widespread throughout the first world.

In the US, the price of housing (and land) shot up, as happened in Spain. Where bubble is, the financial vultures are doing their business. Financial vultures were running amok, making and breaking at will for several years, after the repeal in 1999 of the Glass-Steagall Act (US Banking Act). This Act stopped wild speculation, and when it disappeared, commercial banks could leverage more and more and take more risks. And we know how the party ended...

We already had the perfect cocktail: housing bubble, financial deregulation, low interests and financial engineering. The cocktail was good, great, but hangover is painful.

Although the United States was the germ of the crisis, also gave us clues as how to overcome it. Several banks fell (although none was systemic, but Lehman Brothers almost cracked all) and US government imposed expansionary policies quickly, massively injecting capital into the economy and encouraging consumption, and reimposed certain regulatory measures, but without reaching the situation prior to 1999. Well, as here in Europe...

And, yes. This is something that "Grandpa" Keynes said in 1936: The State should act as a regulator, increasing demand and consumption, and only then, it is possible to overcome the crisis.

As I said at the beginning, European ringleaders, please ... Let's give up your austericide inventions, and let's apply those that always worked well, please. Consumption, Consumption and Consumption.

Monday, 27 October 2014

Spanish banking sector passes ECB stress tests

Hello everybody! Yeah, The Economist from Spain is come back! I must admit that my blog has been a little neglected... You know, other priorities... But lets deal with an issue that is very topical: ECB stress test!

Yes, last weekend, ECB and the European Banking Authority (EBA) published the results of their last stress tests. 130 firms were examined in detail in order to make sure they are strong enough to withstand an extreme economic situation. Well.... any most extreme situation is possible?....Have you never heard anything about the "third recession"?... is another part of the story, but extremely closely linked to these tests.

According with these tests, spanish financial sector companies passed the test, and the biggest ones did so with aplomb. Yeah! Great job! Spanish citizenship and the banks themselves have recapitalized the system. The logic indicates that the next step is to implement expansionary policies to boost the economy and job creation. But I fear that the short answer is NO. And the consequence of this negative answer clearly will be the expected third recession.

After all, I'm just a stupid keynesian... We cannot overcome an economic crisis without stimulating consumption, it is theoretically and practically impossible. Now and forever.

But, you know, austerity rules...


Thursday, 28 August 2014

Green shoots in macroeconomics: Spain GDP rose 0.6% in Q2

Hi my friends! Today's post is about exciting and very positive news from spanish economy. Well, I always have said that austerity is painful, but it works, or at least in this case.

First, the news: Spanish GDP rose +0.6% in the second quarter.

The recovery probably is well underway, but as I wrote in previous posts, only in macro figures. We are still awaiting the real recovery for Spaniards and their microeconomy. I'm still sure that if politicians and economists used expansionary policies instead of austerity, the final result would be the same (recovery) but generating less pain and economic asphyxia for citizenship. Time is very important, especially for those with no time.

But we certainly ought to be pleased with these figures, Spaniards must be pleased at this, because our efforts are giving results.

Now, we must move together, and when the full recovery become a reality, our society will deserve the total restoration of our welfare state.

Enjoy the good news. Congratulations, Spain.


Tuesday, 19 August 2014

Green shoots in Spain? Not for youth...

Hi my friends! I'm on holidays, for the entire month, but I must write once a month at least...In a break, I am going to inform you about the "green shoots" in Spain. Because, yes, there are green shoots in Spain, but only in macro figures. You know, premium risk is low, exports are growing (more or less, the last figures in this area are not good enough...) and the perspective from markets is positive. But I have always characterized by focusing on micro figures, on day-by-day economy.

Here in Spain, political discussions on TV are "on fire". Many channels broadcast debates and a significant proportion of the audience follow these shows. A trend topic is the recovery, real or false? Green shoots?

As I have written a few lines ago, the recovery is real, at least for the national macroeconomy, but the real situation for Spaniards is the same, unfortunately.

Just two examples:

- One of the problems of this country is its business fabric. According to a survey by La Sexta, there are 1.2 million of businesses. Problems arise when the data are analyzed:

  • 60% of Spanish companies have 1 or 2 employees. 
  • Half of the companies are bars, shops and auto repair shops, that do not add value. 
  • Only 0.7% of companies have 250 or more employees.
 Is it possible to compete with this structure?

Nearly 1,000,000 Spaniards under 35 have been forced into exile. 9 out of 10 of those who stay in Spain, have temporary contracts. Today, talent drains, and tomorrow, we won't be able to pay. the pensions. Green shoots!

What about the future?....And, what about our present?....

Green shoots...