Spanish Home Prices, Bank Asset Quality Fall
The latest data is bound to affect the bank recapitalization plan.
The Spanish home price index fell 8.3 percent from a year ago in the second quarter, a much larger drop than the rate of decline in the first quarter. Home prices had fallen at a 7.2 percent annual rate in the first quarter. Economists had expected home prices to decline at a 7.5 percent annual rate.
The steep drop in home prices
Spanish banks lent heavily to the real estate sector in the previous decade as home prices
As asset values fall, banks record losses, which affect the financial statements in the shareholder's equity section. The recapitalization is aimed at replenishing the banks' equity with fresh capital. Thus, further losses on bonds would make any required bailout larger than previously anticipated. Because German, Finnish, and other Northern European officials have been reluctant to help at this current stage, asking for more funds would be extremely difficult and would be politically tough for the creditor nations to allow. If the broad Spanish economy contracts further and home prices fall further, Spanish banks could be in trouble.
Some Spanish banks are traded in U.S. markets. For example, Banco Santander (SAN) has shares listed in the U.S. and so does BBVA (BBVA). Traders can express opinions over the health of the Spanish banks through these two stocks and can express broad, Spanish economic views through the iShares MSCI Spain ETF (EWP).
Editor's Note: This content was originally published on Benzinga.com by Matthew Kanterman.
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