The currency blog

The government of Spain has announced that the banking system will be restructured, as warnings sound that “catastrophic” risks are imminent if contingency plans are not set in stone to deal with subsequent bank bailouts. Economy Minister Elena Salgado said on Wednesday “We shall start a process of restructuring with them to strengthen the system.”

Spain needs to move swiftly

At a Madrid banking conference, the head of savings bank association CECA commented that Spain needs to move swiftly to set up a fund to bail out banks in turmoil and further interventions would not be unexpected. Due to their limited exposure to toxic assets Spain’s banks have up to now avoided writedowns. CECA chief Juan Ramon Quintas is of the opinion that this is no reason for them to miss out on state help, if it is needed, to put them on a par with their foreign rivals. “It would be a great shame if the best prepared system finds itself in a worse condition than its competitors from countries that have helped their institutions,” Quintas said during a conference, while the chairman of the Spanish Banking Association Miguel Martin added that the banking system needs to be restructured if it is to compete with foreign rivals that have been recapitalised after state intervention. “Our competitors have been capitalised without need to restructure, which has allowed them to capture resources at an advantage,” Martin said. “Under these conditions, the system will have to be restructured … so it may be strengthened, made more efficient and remain competitive.”

Bailouts

In March, the Bank of Spain had no choice but to bailout savings bank Caja Castilla la Mancha, backed by 9 billion euros of guarantees. Quintas said further bailouts were on the cards. El Economista newspaper reported on Wednesday that it had drawn up a list of seven savings banks which would need restructuring, allegations that are being denied by the Bank of Spain.

Elsewhere, Germany hopes to have a plan in place by the summer for dealing with its banks’ toxic assets according to senior ministers. In March, the U.S. government offered investors incentives to help rid banks of up to $1 trillion in bad assets. Similarly Britain launched a 500 billion pound scheme to cover banks against losses on risky investments back in February.

Just around the corner

Quintas hinted last week that a fund to aid the Spanish financial system, hard hit by the economic slump and collapsing property prices, could be just around the corner. According to the opposition Popular Party, the government has already rejected a Bank of Spain proposal which included a call for the creation of a fund to help troubled banks.

April is over and with it, the first full month of combined activities for charity. To summarise, we had 3 Dress Down Fridays, 1 Grand National Sweep, 1 Easter Raffle and 3 Rate Watch Competitions. Phew…! We also collected £14.52 in the spare change tub for The Food Chain, which has been added to the total.

But how much have we raised, I here you cry! Well, the tubs of gold coins have been counted along with all monies collected and the new co-operative wall cumulative total is…. Drum roll…. £874!! That’s fantastic and surely means that we will be into 4 digits really soon. Please all give yourselves a pat on the back – or better still give a colleague a pat!

So, how is this month’s total (£403.49) being split between the charities Cancer Research, Save the Children and the British Heart Foundation? Well, you put your gold coins where your allegiance lay and there were 2 clear favourites in the office, but Save the Children just took the edge with 324 coins from Cancer Research with 318 and the British Heart Foundation with 214. Once we added in all the other collections equally to this, it meant that each charity received:

Save the Children £142.23
Cancer Research £141.03
British Heart Foundation £120.23

The co-operative wall has now been updated to show who we are collecting for this month – Leukaemia Research, Barnardo’s and Alzheimer’s Research. Why don’t you stop by the wall on your way home tonight and check it out!

The CSR team have a lot of fundraising ideas for May so watch this space but this Friday will be the first of 5 Dress Down Fridays in May!!

Yesterday and overnight we have experienced a broad sell off in the USD as a return to global risk appetite kicked in. GBP/USD is approaching the 1.50 level again after a good start to trading and EUR/USD has tested the 1.3350 resistance level this morning. Last night we had the FOMC decision and as expected interest rates remained unchanged at 0.00- 0.25% and the statement commented that rates will remain low for “an extended period”. Furthermore the Fed stuck to their guns following the March announcement that they will still purchase a total of up to $1.25 trillion of agency mortgage-backed securities and up to $200 billion of agency debt by the end of the year, as well as $300 billion of Treasury securities by autumn. On the upside the fed noted that the “pace of contraction appears to be somewhat slower” which allies with the surprising surge in US consumer confidence and there was also signs that the market was beginning to repair itself outside of intervention. Before we get carried away and start talking of an imminent recovery we must remember yesterday’s severe Q1 GDP data from the US which showed a whopping 6.1% contraction against a forecast of a 4.7% drop.

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Is the question as investors appetite for risk was sharpened yesterday by some positive U.S. economic data while enthusiasm was tempered by raised concerns over the effects of Swine Flu and worries that the U.S. banking sector will be required to raise substantial amounts of additional capital once the Federal Reserve publishes the results of its stress testing of 19 major U.S. banks early next week. Bank stocks fell sharply triggering falls on global equity markets but better than expected U.S. consumer confidence data, evidence that the pace of decline in U.S. house prices is slowing and IBM’s announcement of a 10% increase in its dividend all helped U.S. stocks remain in positive territory for most of yesterday’s session but it was not enough to prevent the Dow and the S&P indexes closing lower. The Conference Board’s U.S. consumer sentiment index for April rose to 39.2 from an upwardly revised figure of 26.9 in March and well above the market consensus forecast of 29.2. At the moment the USD is weakening- a signal that risk appetite is gaining the upper hand presently. Read the rest of this entry »

… as Swine Flu continues to dominate market chatter. Unfortunately it is the unknown that is causing the problem rather than anything definite and until we know whether the infectiousness of the virus, which originated in Mexico, can be contained by the World Health Organisation then we won’t be sure of the financial impact. The death toll in Mexico has risen to 149 and the WHO has upgraded its alert level to phase 4, one stage below the much more serious pandemic category. Phase 4 was the level at which the latter stages of the SARS outbreak was categorised. Initially the Mexican Peso and the Antipodean currencies were hit hardest but concerns remain that if the situation worsens then sectors other than just agriculture will be affected. The mediterranean countries are earmarked as likely targets (Portugal, Italy, Greece and Spain) with a downturn in air travel and tourism at a time that these countries can least afford it.

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With countless conflicting opinions on the Spanish property market and where it’s heading at the moment, a call for some reliable data to base a decision on is not an unreasonable request. The Spanish government’s response is that they are to produce a “housing map” to assess the true scale of the Spanish housing crisis. According to the Ministry of Housing it will be the most “up to date and detailed analysis possible of the residential construction sector in Spain.”

Most pressing question…

The most pressing question on most people’s lips is “how large is the surplus stock of new properties that is keeping developers and banks awake at night?” Developers say between 650,000 and 700,000, whilst other experts and analysts consider it could be as high as between 900,000 and 1 million. Read the rest of this entry »