Tuesday, June 26, 2012
Spanish banks will be forced to sell off equity holdings
The Spanish bank bailouts do not come without conditions, some of which provide great opportunities for investors to buy equities held by the banks at fire sale bargain prices. While this will end a cozy relationship between the banks and some top companies it will also mean that equities will be sold at very low prices with the banks losing money on their investments in many cases.
The cost of Spain's banks being recapitalized by the European Union include a requirement that they sell off their equity assets. These assets include large holdings of telecom leader Telefonica, Repsol the giant oil company and power company Iberdola,.
An estimated 28 billion U.S. will be up for sale. The total is as much as 9 per cent of the capital of Spain's blue-chip index. Flemming Barton an analysts said::"They're going to have to sell. And with no light at the end of the tunnel as far as the macro, political dance, the chances of holding out for a better price increasingly look like wishful thinking," said Flemming Barton, analyst at CM Capital Markets
A number of so-called vulture funds are eying these sales of equities hoping to profit from the misfortunes of the banks. For much more see this article. Today the situation appeared to be worsening as costs for floating new bonds increased.