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According to data published Friday by the Bank of Spain, the total value of the banks' bad loans rose in June to 164.36 billion euros ($202.2 billion), compared to a total loan portfolio of 1.74 trillion euros ($2.14 trillion).

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MADRID (Reuters) - The European Central Bank must take forceful and unlimited steps to buy sovereign debt to help Spain reduce its refinancing costs and eliminate doubts over the euro zone's future, Spain's economy minister said in comments published on Saturday.

"There can be no limit set or at least (the ECB) can't say how much they will use or for how long," when it buys bonds in the secondary markets, Luis de Guindos told Spanish news agency EFE.

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In his weekly missive John Hussman has pointed out in the context of Angela Merkel recently reiterating her support for the ECB's plan, 'investors have stopped actually listening for fact, and are increasingly hearing only what they want to hear'.

If you still require proof that in the short term, market action is driven by perceptions and sentiment rather than reality, here it is. It is worth quoting again what Mrs. Merkel said in Ottawa in toto:

“The European Central Bank, although it is of course independent, is completely in line with what we’ve said all along. And the results of the meeting of the central bank and their decisions, actually shows that the European Central Bank is counting on political action in the form of conditionality as the precondition for a positive development of the Euro.”

Does this sound like 'unlimited bond buying without preconditions' to anyone? No? Investors seemed to think that is what it meant. We see no painless way out for Spain, regardless of what ultimately happens. Even if the ECB were to act without conditionality or limits, it could not possibly alter the underlying solvency problems - and this isn't going to happen anyway. So what are markets currently pricing in? Everybody seems quite certain of a happy end at the moment. The bet is that massive central bank intervention is heading our way in the near future and will boost asset prices further. This is a mindset that has very likely set up the markets for disappointment.

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http://www.reuters.com/article/2012/08/2....
Thu Aug 23, 2012

Spain's government will grant new powers to its central bank allowing it to intervene in troubled lenders "early" while the country's bank rescue fund will win more capacity to wind down failed entities, Spanish newspapers reported on Thursday...

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The central bank will also be able to remove top officials from their posts at struggling entities, the newspaper said.

Any action by the Bank of Spain must be approved by the bank rescue fund, known as FROB, which would receive quarterly compliance reports. The FROB will be placed under the direct supervision of the Economy Ministry.

After the first phase of help from the central bank, the FROB will take charge of the restructuring and "orderly resolution" of banks.

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The FROB would have the options of directly injecting cash into a bank, or transferring debt securities from the Treasury, itself or the European rescue fund, El Pais said.

If banks receive aid from the FROB, shareholders and creditors must be the first to take losses, the newspaper said, citing the draft document.

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http://www.marketwatch.com/story/spain-b....
Aug. 28, 2012

MADRID (MarketWatch) — Spanish depositors took no comfort in the looming bailout of the country's banking sector, deposit data for July from the European Central Bank showed Tuesday.

Deposits in Spanish banking institutes dropped a whopping 4.7% on the month in July, data from the ECB revealed....

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The numbers, however, may not be as alarming when one considers that in Spain companies typically pay taxes in July, meaning that a certain withdrawal of funds is to be expected, a Bank of Spain official told Dow Jones Newswires. Moreover, households also tend to spend more in the summer months as they go on holiday.

The official also said that roughly two-thirds of the withdrawal was from investment and securitization funds that were not renewed, meaning that fund managers had to repay owners with deposits...

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Spain's Deputy Prime Minister Soraya Saenz de Santamaria said on Friday the government had approved the country's latest banking reform in which it will establish a 'bad bank' to hive off soured property assets.

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http://www.reuters.com/article/2012/09/0....
Tue Sep 4, 2012

(Reuters) - The Spanish Treasury will inject 6 billion euros ($7.6 billion)into the state's bank rescue fund to beef up its firepower after the emergency recapitalization of troubled lender Bankia, a source from the Economy Ministry said on Tuesday...

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http://www.google.com/hostednews/afp/art....
04 SEPT, 2012

MADRID — Spain's jobless queue grew to 4.63 million people in August, the government said Tuesday, grim news for an economy suffering nearly 25-percent unemployment.

Snapping a run of four monthly declines, the number of job seekers in August climbed by 38,179, or 0.83 percent, from July, the Labour Ministry said in a statement.

"Although it's true that an increase in unemployment is bad news it should be stressed that it is the weakest increase for August, traditionally a bad month for employment, since 2006," Labour Minister Engracia Hidalgo said in a statement....

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Spain to protect hybrid holders
http://www.reuters.com/article/2012/09/0....

LONDON, Sept 7 (IFR) - New Spanish regulations are set to turn on their head the usual rules of seniority inherent in debt restructuring, with holders of restructured subordinated debt issued by the country's banks potentially suffering even though owners of hybrid instruments escape being fully wiped out.

A Royal Decree published on August 31 outlined a raft of special financial sector insolvency reforms that will determine how stakeholders of institutions that needed fresh capital might be restructured.

The decree made plain that existing common equity holders will suffer the first loss and will have to be wiped out before the value of other instruments start to be written down....

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"The new law lacks clarity on this point," said Francisco San Miguel, partner at Spanish law firm Uria Menendez. "Rather than a hybrid being written off entirely before the subordinated instrument takes losses, it suggests that a hybrid might take a haircut of only 60% to its principal and the subordinated bond would have a haircut of below 60%."

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The legislation also states that senior bondholders will not be affected by any liability exercises...

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So Spain is not under any pressure to cut or implement reforms over and above what is already has but must still make a formal request for support, and then stick to the reform program it has already put in place. Those are the terms and now all that's left is to wait and see if Mariano Rajoy will accept them.