Tells you something about how beaten up Spanish bank stocks are when Banco Santander (STD) delivers news of a horrible first half and the stock only falls 5.6%. And that on a day too—July 27–when stock market indexes such as the Standard & Poor’s 500 were themselves down 2%.

The next day, July 28, shares of Banco Santander were up 0.89% and they’ve inched ahead another 8 cents a share today. The shares pay an 8.42% dividend and at today’s price of $10.28 are very close to their 52-week low at $9.43. If they can get back just to their depressed 52-week high at $13.75, you’re looking at a gain of 35% plus dividends. (Banco Santander is a member of my Dividend Income Portfolio http://jubakpicks.com/jubak-dividend-income-portfolio/ )

How bad was the July 27 report?  So bad that Banco Santander’s results from its home market of Spain—you know, the Spain on the edge of joining the euro debt crisis club—weren’t the worst news the bank had to report.

That honor fell to the United Kingdom where a huge $1 billion charge to cover claims that the bank, like other banks operating in the country, mis-sold mortgage payment protection insurance was enough to turn a 9.3% drop in first half earnings per share from the first half of 2010 into a 22.9% plunge.

I’d make the case that the news from Spain wasn’t even the second worst for the bank. Read more

Well that sure worked–the euro debt crisis moves to Spain and intensifies

The financial markets have started to do the math they should have done six months ago, and they don’t like what they’re seeing: The European Union’s much vaunted financial backstop fund might not have enough money to rescue Spain, the numbers argue. That’s because the fund never was as big as advertised.

The realization that the attempt to paper over the euro crisis until 2012 or so isn’t very credible has savaged Portuguese and Spanish government debt today. Read more

Now it’ Spain’s turn to depress the euro

More worries for the euro. This time from Spanish politics.

Prime Minister Jose Luis Rodriguez Zapatero has set a September 30 deadline for announcing his government’s budget plan. Investors want to see a combination of taxes and spending that reduces Spain’s budget deficit, the Euro Zone’s third largest. But they’re skeptical that Zapatero can deliver: Since July 27, the spread between the benchmark 10-year German bund and the Spanish 10-year bond has widened by 0.3 percentage points to 1.79 percentage points. The spread’s historic high since the introduction of the euro came on June 16 at 2.21 percentage points.

The skepticism is well founded. Zapatero heads a minority government that depends on the votes of six members from the country’s Basque Nationalist Party, which advocates separation from Madrid, and abstentions from at least one other lawmaker, to achieve a majority on the budget. If he can’t pass a budget, Zapatero’s Socialist government is likely to fall.

Which is, perversely, the reason the budget is likely to pass.  The prime minister has run a minority government since 2004, cobbling together one fleeting coalition after another. An early election, if the budget fails, would probably go to the pro-business People’s Party according to recent polls. That gives left-wing parties that have voted with Zapatero in the past incentive to find grounds for a deal again.

The real problem for Zapatero is that his own party has shown no enthusiasm for the kind of spending cuts and tax increases that the country needs to convince investors not to sell Spanish bonds and push up the interest rate that the government has to pay on its debt. The strongest action the Socialists have taken was to pass a 5% cut to public sector wages and a freeze on pensions back in May. And that only passed by one vote.

The cliff hanger will further unsettle the European debt markets, which are already pushing up the interest rate spreads on the heavily indebted countries of the Euro Zone periphery—Ireland, Portugal, Greece, and Spain. Read more

Spanish interest rates climb as the country takes another step toward crisis

  You can breathe a sigh of relief that Spain managed to sell a new debt issue at all, but the soaring interest rate the country had to promise buyers is a sign that worries that Spain is headed straight toward a Greek-style debt crisis are all too justified.

Yesterday, May 5, Spain sold $3 billion in five-year notes at an interest rate of 3.532%.

Doesn’t sound too bad right? Wrong. Read more

Greek crisis postponed, it’s time for the Spanish crisis to move front and center

Assuming that the $146 billion bailout of Greece goes ahead as planned, investors can forget about a Greek crisis for about three years.

And start to focus on Spain. The debt problem there looks like it’s developing along exactly the same path as the Greek debt crisis. I’d call the current stage denial of the size of the problem: On Friday Spanish finance minister Elena Salgado announced a new austerity plan that would save $21 million a year by cutting 32 senior jobs in government and eliminating 29 public agencies. Not exactly impressive for a government facing a $140 billion annual deficit. (Spain’s economy is about one-tenth the size of the U.S. economy so that deficit is equal to about $1 trillion in U.S. terms.)

It’s by no means certain that the bailout plan agreed to by European Union leaders over the weekend will go through. The biggest source of uncertainty, as it has been through the crisis, is Germany. It looks like Angela Merkel’s government has the votes to get the plan through the German parliament but the measure faces a constitutional challenge in the country’s supreme court, and there is a possibility, albeit small, that the court could stay Germany’s contribution to the bailout, until it rules on the issue. It’s doubtful that the court would decide to throw the European Union into crisis—the Supreme Court follows the election results, as Finley Peter Dunne’s Mr. Dooley commented about the U.S. court more than a century ago, so let’s assume the deal goes through.

Then what? Read more