IT'S OFFICIAL: Banks In Europe May Now Seize Deposits To Cover Their Gambling Losses

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13. Spain braces for ‘tsunami’ of bankruptcies as banks pull plug on zombie developers

Spanish banks are pulling the plug on thousands of builders kept alive during the past five years even as they built almost nothing, said Mikel Echavarren, chief executive officer of Irea, a Madrid-based consulting firm that has advised on 22 billion euros (US$28.5 billion) of refinancing. The banks, forced by the government last year to set aside provisions for the developers, have no incentive to keep funding them.

“Banks have taken the hit, so extend and pretend is over,” said Echavarren. “There’s no motivation to refinance companies that aren’t viable, have no liquidity or possibility of future earnings so we’ll see a tsunami of developer bankruptcies in the next two years.”

The final collapse of an industry that accounted for as much as 18% of Spain’s growth amid the country’s decade-long real estate boom will add to unemployment, already at a record 26%, depress consumer spending needed to turn around the economy and push down the value of residential real estate that’s already dropped more than 30% since 2007, said Raj Badiani, an economist at IHS Global Insight in London.

While job losses in the construction industry continued in recent quarters, “they’ve been less severe than expected, given the scale of the real estate slump,” said Badiani. “With banks cutting financial life support to many developers living on borrowed time, we can expect an accelerated downward adjustment in employment levels.” Badiani estimates the jobless rate could climb to more than 27% this year and house prices will fall at least 50% from the peak by 2015.

http://business.financialpost.com/2013/03/20/spain-braces-for-tsunami-of-bankruptcies-as-banks-pull-plug-on-zombie-developers/?__lsa=625c-0112