juni 11, 2012

Ecco là!

There it is! The Spanish bailout I have dreaded since 2008! Yesterday, Spain received a giant (up to 100bn euros) bailout package from its fellow euro-zone countries. The official story is that the money will go to shore up the Spanish banking sector and not directly into the Spanish budget. I believe it when I see it!

In any case, even if the money indeed goes to the struggling banks, I do not think this is the turning point. Unfortunately I cannot see how this emergency knee-jerk reaction will help the European banking sector to stability. Both as an investor (based on gut feelings) and as an academic (based on research) I doubt it will be enough! For my gut feelings I refer to old entries on this blog since I am getting fed up with repeating my negative outlook for Europe. When it comes to research, I have actually studied the correlation among major European banks in the paper Estimating Asset Correlations Using Credit Default Swaps plus Stocks – An Empirical Study of European Firms and one of the results is that the correlation among banks’ assets is higher than previously thought. That means that if the asset value of one of the Spanish banks falls the risk of contagion to, let’s say, German or Swedish banks is higher than many tend to believe. At least if the results in my paper are correct. In a not too distant future I will present my research on a risk management conference in Rome and perhaps they will support me in my analysis.

I have written a lot of pessimistic entries on Spain earlier (on April 4, 2008 I wrote Byggnader är till för att titta på och bo i!), most of it in Swedish. For an English example, you can check this one from November 2010 if you like Sell European Bank Stocks? – Part II.