Take 5 and come back tomorrow

First of all, let’s be clear. The following is not investment research/advice. And, as such, it involves no investment recommendations. These are my thoughts on Spanish equity issues, which I find relevant. I share them freely (and not just as regards price). As always, I am only trying to help. Please read the rest of the “discomplainer (*)” at the end of the article.

Market environment: Suffering under the weight of China - (Asia-Pacific markets declined with futures for Europe and the US mildly up) – Asia-Pacific markets declined dragged down by China, amid continued worries about the US debt ceiling. Futures for Europe and the US are modestly up.

Response to the crisis: Empty threats - (Catalonia will expropriate empty homes held by large landlords if they are not devoted to social rental (Expansion p34) - Having the focus of the elections on the part of left wing/regional parties on housing is not a positive from the point of view of responsible proposals to fix the housing rental problem. The problem in Spain is lack of supply in high demand areas. Limiting house rentals and now penalising/expropriating empty homes is not the best way to encourage increased supply. And using public funds to finance expropriations rather than new build does not seem an ideal use of the money.

Banks: Size does matter - (Deposit rates are still 35% below the European average (Cinco Dias p18) – The remuneration on household deposits is significantly lower than the European average although that on corporate deposits not so. Although they have also risen significantly, the cost of deposits in Spain is lower than in peer countries. This is likely to be due to the fragmented nature of household deposits, although the difference between household and corporate rates might raise questions regarding the degree of effective competition in the market.

NH: A bird in hand… - (Minor will not exclude NH from the market and will buy shares at market prices after rejection by the Stock Exchange Commission (CNMV) of its proposed bid price (Expansion p5) – Given the very low free float (6%) the rejection of the proposed acquisition price of €4.5/share by the Stock Exchange Commission is unlikely to benefit the shareholders much. Rather than obtain a premium the shareholders will potentially see the free float decline further, as Minor aims to buy at market prices.

Real Estate/Banks: No guarantee for the borrower - (The Government will spend €2.5bn on guarantees for house purchase (Expansion p35) – Providing guarantees for house purchases sounds like a good idea. But historical precedent points to the measure, all other things being equal, resulting in higher prices and thus tougher access to housing. Additionally, it should be noted that what is being offered is a guarantee. The fine print will bear reading, but unless otherwise stated the guarantor is usually subsidiary to the beneficiary of the guarantee (and Spanish “mortgages” are personal loans with mortgage guarantee) meaning that it provides comfort to the lender but not the borrower, who will be wiped out, if the value of the home does not cover the amount of the loan, before the guarantee kicks in.

*The above information has been read/understood/summarised/evaluated/copied as well as I could to provide a guide to Spanish equities, given available timing/intellectual constraints, and I accept no liability for misreading and/or mistranslating the original copy as set out in my previous article (which I urge you to check, as I am only trying to point you in the right direction, I hope). As for what you may decide to do, after reading the above, please contact your legally approved provider of investment advice on Spanish equities.