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Bank of Spain Says Banks Need Additional Euro 29.1 Billion


Oh, sorry, didn't add that up right the first time. Just one of many surprises to come?

The Bank of Spain announced today that banks need an additional euro 29.1 billion to meet new requirements on real estate.

They just realized this now? This is additional? New and more than they thought before? So Spain will give banks money, Spain will borrow from the IMF, and Spain will become one of Greece, Portugal, or Ireland?

Spain needs to cut its debt, not add to it, or transfer it from one holder to another.

Here is a simple idea: Make all coupons 1.25% retroactively. LTRO borrowers are still getting positive carry, outright holders get income, and with retroactive changes elsewhere, this seems as reasonable as anything.

Double the maturity of all bonds' maturity to two years or more. Again, this protects the banks that bought front-end stuff. Any bank that holds longer-dated bonds has them in an accrual book... so what do they care -- no mark to market effect. Insurance companies will be hurt, but they use some average long-term return anyway, so no real impact. Maybe not a great idea, but maybe better than taking on more and more debt without materially changing anything?

The mindset must become that bank equity holders and bank sub-debt holders can be wiped out. Equity and sub-debt should be used to save the country. The country can save depositors and maybe senior unsecured bondholders.

Let someone create a new bank. I have half joked about the "Bank of Pete" but there has to be huge pockets of money that would love to start a fresh bank in this environment -- ECB support on the borrowing side, and limited competition on the lending side.

I'm afraid the "train has left the station" and Spain is devoted to a course of action that has had limited success in Ireland and been a failure in Portugal and Greece. It isn't too late. Hire a restructuring expert -- Evercore (EVR)? Get someone to figure out what the best possible outcome for the Spanish people is, and go with it.

Editor's Note: For more from Peter Tchir, check out TF Market Advisors.

Twitter: @TFMkts
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