UBS estimates financing needs for Spain at about €8bn per month for the last third of the year. This number is too low. Spain has been deteriorating more rapidly than the politicians, bureaucrats and bankers are letting on.
Let’s look at the facts. First, Spain surprised everyone Wednesday by asking for bailout money for its banks. The country was supposed to wait until September. I posted on this topic:
Now we find out that Spanish bad loans soared as borrowers are defaulting at a faster rate.
Second, Spain has admitted that it will not achieve its goal of a 8.9% of GDP deficit for 2012 and upped its budget deficit one point to 4.5% of GDP from 3.5% for 2013. But no one changed the estimated financing needs for the rest of the year!
BTW, if you believe that the final number will wind up being only a little more than 8.9%, then I have some shares in the new Jon Corzine Euro Growth Hedge Fund that I’d like to sell you.
Here is my quick calculation of Spanish financing needs for the rest of the year. If UBS calculates €32bn based on the old budget deficit numbers, stale loan default numbers and current regional financing needs, we need to adjust this number upwards.
The old budget deficit of 8.9% should be raised to 10%. This makes the actual number €45bn just to finance the central government. The regions also need a lot of money, but they have been quiet on the topic since they attempted to tap the €18bn regional bailout fund in July. The actual needs of the regions for the rest of the year are at least €36bn.
This means that Spain will require €81bn just to finance itself until January. Remember, you read it here first.
Oh, I forgot about the banks. A €100bn payment to recapitalize Spanish banks, really? We’ve all been watching this eurocrisis enough to know that this is a wild underestimation of capital needs in order to not spook the markets. The most recent figure for bad loans is about €150bn. Just to be safe, let’s double this number to €300bn
You can fudge the first €100bn, and the Europeans will to maintain the status quo. The problems will come when Spain requests the real money to bailout its banks.