Thursday, May 10, 2012

Will Spanish banks survive?

Back in 2009, a friend of mine asked me " if the Americans had to "nationalize" many banks and had to inject moneys in GM and others, if the British, French and Germans had to follow the same recipe, if Iceland went broke, is it possible that Spain had n casualty among banks (with the exception of Caja Castilla La Mancha).

Now we know how it happened, is because the Bank of Spain (Regulator) consistently swept the reality under the rug.
Now 178.000 millions of euros derived from losses in the real estate market, have to be acknowledged.
The economy of Those actions should have been:
1 - To recognize that the price of houses, apartments and land were decreasing as rapidly as they had been growing before (1990 to 2007).
2 - As a consequence of that a higher loan to debt ratio was requiring a higher capital level
3 - The decreased economic activity and high unemployment rate (24%) were deteriorating the quality of the RE portfolios of commercial and saving banks.
Now May 2012 the Government has to inject capital in the fourth largest bank (Bankia), has already capitalized other seven institutions and it will be required that the whole system creates reserves for additional 50.000 millions of euros.
The consequence of all this will be weaker financial institutions simply because the government did not do what it was suppose to do.
The lack of actions from the Government of ex President Rodriguez Zapatero (April 2008 Nov.2011), worsened the situation of the whole financial system, which until the 2007/8 crisis was considered one of the strongest of the world.

Wednesday, January 18, 2012

Buying property to let III

Real Estate seems to be a good decision these days, for those investors seeking for safety rather than immediate gains. Investors tend to maintain their investments in areas that they know better. Stock exchange investors prefer to stick to their usual investments in that market rather than diversifying to other segments like Real Estate.

Diversification, if well managed, means a safer way of investing.

I recommend to have a balanced mix of types such as investments in Euros and US dollars for example.

This seems pretty basic but some people that recently contacted me had not paid any attention to this very basic fact.

There are many programs in the market for sophisticated investors to combine several types of investments according to each individual risk appetite.

Those theories have been used for several decades and they are effective. Nobel Prize Harry Markowitz back in the sixties generated his theories and tools to assist investors to create balanced optimal investment portfolios.

Some investors do not need to reach those levels of sophistication but rather to stick to basic principles such as definition of investment strategy (Return, time, and risk appetite/aversion, etc) and diversification.

For those deciding for Real Estate as a safe place to put their monies. We may recommend to define their level of investment and location

Combining these two simple variables is the key for a successful investment decision.