While Greek’s debt woes are grabbing the headlines, the real hole in the Eurozone may be Spain. Banco Bilbao Vizcaya Argentaria SA—BBVA to friends—reported surprisingly bad results last week and worries are growing that this is just the beginning of a Spanish banking crisis that could be as bad if not worse than the U.S. one.
A few folks have been worrying about this possibility for a while. Late last year Variant Perception, an economic research house, argued that the collapse of Spain’s property bubble had profound and dismaying implications for Europe’s banking system. It noted that Spain had as many unsold homes as the United States although the United States is about six times bigger.
John Hempton of Bronte Capital, the Australian money manager, has also been on the case. Last year he pointed out what appear to be interesting discrepancies in how BBVA has been accounting for losses on its U.S. operations. At least some of the concerns he pointed out back then appear to be reflected in the bank’s fourth-quarter earnings, which were 94% lower than the same quarter a year before because of write downs on the bank’s U.S. business and a reassessment of its Spanish property holdings.
The question now is whether BBVA has fully confessed to all its problems or is merely beginning to acknowledge them. If the latter, watch out below. The combination of Greek and Portuguese sovereign credit woes, combined with a distressed Spanish banking sector, could turn into a nightmare for the European Union.
Freelance business journalist Ian McGugan blogs for the Financial Post