April 27 (Bloomberg) — JPMorgan Chase & Co., the world’s largest bond underwriter, predicts that Spanish mortgage arrears will surge as unemployment rises. That’s also the view from the international debt market, which has driven up yields on Spain’s bonds in a bet the country will have to bail out banks.
In Spain, Banco Santander SA Chief Executive Officer Alfredo Saenz said yesterday that’s nonsense. “Mortgages get paid in good times and in bad,” he said in a news conference at the bank’s headquarters outside Madrid. “Anyone raising this problem as one of the issues for the Spanish financial system is saying something stupid.”
“There does seem to be a strange contrast between the high level of unemployment and the surprisingly low level of delinquencies on mortgages,” said Georg Grodzki, who helps oversee $515 billion as head of credit research at Legal & General Plc in London. “This raises the issue of whether loans have been amended to make them look current when in fact they are distressed.”
The more than 600 billion euros ($792 billion) of outstanding home loans on the books of lenders may be the “next elephant” for Spain as unemployment spurs defaults, JPMorgan analysts including Roberto Henriques and Gareth Davies wrote in a report published April 26. Spain’s jobless rate rose to 24.4 percent in the first quarter, the highest level in 18 years, from 22.9 percent in the previous three months, the National Statistics Institute said today.
Saenz said Spanish culture is part of the reason why default rates remain low.
“It’s a sociological thing and that’s how it is,” said Saenz.
Santander had 59.4 billion euros of loans made to Spanish households to buy homes at the end of 2011 out of a total loan book in Spain of about 200 billion euros. The default ratio was 2.6 percent in March, down from 2.7 percent at the end of 2011, the bank said.
“The data is good so let’s not start debating the quality of the information,” said Saenz. “Mortgage arrears are not a problem and are not going to be a problem.”
Santander isn’t the only Spanish bank defending its mortgage loan quality.
People “tend to look at the negative side, the unemployed that we have here,” said Manuel Gonzalez Cid, chief financial officer of Banco Bilbao Vizcaya Argentaria SA, Spain’s second- biggest lender, in an April 25 webcast for analysts. “But we don’t look at all the people who are working, who are paying their mortgages and paying their loans in a very normal fashion.”
Of BBVA’s 79 billion euros of residential mortgage loans in Spain, 2.37 billion euros, or 3 percent, were impaired at the end of 2011, according to the bank’s annual report.
[...] Based on Irish default levels, a similar trend in Spain would lead to losses of 59 billion euros for the banks there, according to the JPMorgan analysts.
The picture is clouded by the increasing willingness of banks to change the terms of loans to help customers keep up loan payments. Bankia SA, Spain’s third-biggest bank, said April 24 that it’s making 110 changes to loan terms a day and that mortgages made up 45 percent of the 7,300 term adjustments it carried out in the first quarter.
“Mortgages for individuals in all markets, including the U.S. and the U.K., normally are very resilient and resistant when the situation changes,” said Saenz. “That’s because mortgages get paid.”Has Saenz been living in a cave for the past 5 years?
And also: Spain Rules Out Bailout as De Guindos Says Banks Funded
April 27 (Bloomberg) -- Spanish Economy Minister Luis de Guindos ruled out seeking a bailout hours before Standard & Poor’s cut the country’s credit rating to three levels above junk and a report showed unemployment jumped close to a record.
“Nobody has asked Spain, either officially or unofficially” to turn to Europe’s bailout mechanisms, he said in an interview in Madrid late yesterday. “We don’t need it.”