Spain drops Dow to 12,715

The Real Threat is Spain, Not Greece: Sullivan

Published: Tuesday, 10 Apr 2012 | 5:05 PM ET

Text Size

By: Brian Sullivan
CNBC Correspondent

• Twitter 31

  LinkedIn 9

  Share

Greece who?

The greatest threat to the global economy has quickly shifted west to Spain. Spain’s stock market and big bank stocks continue to tumble. The benchmark IBEX 35 index is down 10 percent since Jan. 1 and nearly 30 percent over the past year.

GlowImages | Getty Images

The American Depository Receipts for Spain’s two biggest banks, Banco Santander [STD  6.51    -0.25  (-3.7%)   ] and BBVA [BBVA  6.95    -0.24  (-3.34%)   ], have fallen 11.6 percent and 13.1 percent over the past four weeks respectively.  Both stocks are now down more than 40 percent over the past year. Yields on 10-year Spanish bonds are close to yielding 6 percent, and the cost to insure Spanish debt is nearing a record high.

Here’s the fear: Banco Santander, BBVA and the third largest bank in Spain, La Caixa, have combined assets of about $2.7 trillion. Spain’s GDP is just about $1.4 trillion.

In other words: Spain’s three biggest banks are nearly twice as big as the entire Spanish economy.

By contrast, America’s three largest banks by assets — JPMorgan Chase, Bank of America and Citigroup — have combined assets of around $6 trillion, or about 40 percent of U.S. GDP.  If JPMorgan [JPM  42.96    -0.93  (-2.12%)   ], Bank of America [BAC  8.54    -0.39  (-4.37%)   ] and Citi [C  32.86    -1.11  (-3.27%)   ] are too big and too systemically important to fail, what does that make Spain’s big three?

For this reason alone, Ben Bernanke and central bankers around Europe are right to be worried. Consider the difficulty the ECB, IMF and European Commission had in working out a bailout for Greece. Now multiply the economic problem a few times over and the scope of the growing Spanish crisis becomes clearer.

Spain’s economy is the 14^th biggest in the world, nearly five times larger than Greece. Spain’s unemployment rate is a staggering 23 percent. That’s worse than the jobless rates in Mozambique, Micronesia or Equatorial Guinea and means there are nearly as many people without a job in Spain as there are working age people in Greece. 

Brian Sullivan
CNBC Correspondent

Spanish home prices continue to fall, corporate and personal bankruptcies are up, and Spain’s economy is contracting.

Put simply: Greece is papas pequenas (small potatoes) when compared to Spain. If Spain’s problems worsen and any of its big banks need a backstop or bailout, it is unclear where the money will come from. The bailout funds in Europe currently aren’t big enough to handle it and many I speak with aren’t optimistic the money could be easily raised.

One thing spooking markets Tuesday was a comment from the head of the Bank of Spain, who said if the economy contracts further than expected Spanish banks may need more capital.

Last week I wrote that $4 gasoline would not take down the macro American economy. It won’t, but given the interconnectedness of the global financial markets, one big, bad Spanish bank certainly could.

The Spanish stock market is now the first thing I check on CNBC.com every morning.  I suggest you do too. end quote from:
http://www.cnbc.com/id/47008853

I don't really consider myself to be an authority on this subject. But what I do know is that the European Union does not have enough money available to bail out Spain and Italy. But they might be able to print enough Euros to where it might all work out if they spread the Euros around to all the european banks. Though this would devalue Euros for everyone on earth, if it kept Spain and Italy solvent it just might be enough to work.