MARKET
COMMENT
January
2012
The
economic minister Luis de Guindos appointed by Mariano Rajoy
the new Spanish prime minister, potentially has one of the most challenging
jobs in Europe. De Guindos is a banker which is probably apt when considering
the current plight of the Spanish economy. Spain has suffered a severe
downturn in the property market since 2007. Prior to this the property
and construction sectors helped drive stong growth, but this higher
than acceptable growth was uncontrolled by the Spanish authorities which
resulted in a classic property bubble. This unmanaged boom and bust
cycle was perhaps caused by the inequalities in the european monetary
system which have only become evident in more recent times. Spain did
not have the power to increase interest rates, for example, as these
are controlled by the European Central Bank. The imbalance between the
so called periphery southern european countries and the richer north
has now come home to roost.
There
still remains the unknown amount of debt that Spanish banks hold on
bad property loans. The bank of Spain has indicated that there is approximately
180 billion euros, but it is likey that this, if accurately assessed,
could be as high as double this figure. The Spanish property market
still has downside risks and 2012 will probably not see much seasonal
cheer.
100%
MORTGAGE STILL AVAILABLE!! - Spanish banks are said to have
upwards of 300,000 repossessed homes on their books and this figure
is probably at the conservative end of the scale. There has been wide
publicity about the numerous unfinished developments on the mediterranean
costas and the high levels of bad debts that the Spanish banks own and
therefore logic would dictate that there is little liklihood of them
offering mortgages without substantial deposits, but they are and in
some cases as much as 100%.
Many
banks are offering deals to offload their own repossessed property in
order to reduce there balance sheets. If one were to apply for a mortagage
from a particular bank on property not owned by them, then the answer
would be less positive and a large deposit would be required in the
event that they even made a mortgage offer. This behaviour is skewing
the natural market price levels along with the reluctance of the banks
to release all the property they have on their books.
The
pound ends the year just shy of the 1.20 level against the
euro. This level reflects the uncertainties in the financial markets
as to whether the euro can survive 2012. Recent massive liquidity injections,
of half a trillion euros, have been pumped into the euro banking system
and over 500 banks have taken up cheap three year money offered by the
ECB. The immediate threat of a credit crisis has probably been avoided
but the first half of 2012 will be crucial as the eurozone requires
to re-finance a substantial amount of debt.
When
considereing the performance of the pound against the euro and the prospects
for 2012 one financial commentator said in the run up to the new year
"it's not that the pound is gaining strength, it's simply the euro
is getting weaker"
HAPPY
NEW YEAR
