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Wednesday, 4 January 2012

An SMS from Ernst (23): Short Messages Service

A new year has come to us and this means a fresh and hopefully better start for everybody. I wish you all a very happy and healthy new year. 

To celebrate the coming of 2012, I send a special SMS to you. This happens also because the big news was still on vacation today. However, the little news returned in time for this article. All links mentioned in this article are in Dutch.
Belgian banks losing roughly €5 bln in savings. Dutch banks profit from this ‘small’ bank run.

Three Belgian news sources reported today that the Belgian banks KBC and Dexia lost €5 bln in savings’ money during 2011. Two branches of Dutch banks ING Belgium and Rabobank Belgium profited most from this money, by gaining €3.5bln in new savings. Also the Belgian bonds for private savers, the so-called ‘staatsbons’ profited from this development.

As all three news stories quoted slightly different data, I took the commonly shared data and calculated the missing or faulty data myself. I think the data mentioned in this article is pretty reliable.

Here are the pertinent snips from one of the sources, the Belgian newspaper De Morgen ( 

Dexia Bank Belgium (part of Dexia SA (DEXB)) lost €3.5 bln in savings during the last year. Of the €33.8 bln that was stored at Dexia at the end of 2010, only €30.3 bln remained at the end of 2011; a loss of 10%.

The bank itself sees two reasons for the outflow of savings’ money; the hard time that the benk went through before it was taken over by the Belgian state and the success of the staatbon, the sovereign bond exclusively for private savers. The news confirms earlier messages of a bankrun that took place at DBB in October.

Also  KBC Groep NV (KBC)  (-4.7%) is among the losers.

Rise and fall in savings´ money at banks in Belgium
Amounts are based on aggregated data
Click to enlarge
This article shows not only how quickly things can go wrong at a bank when it gets ill-reputed suddenly, but it shows also that even a moderate ‘liquidity shock’ (Basel III) could easily cost a bank 10% in savings’ money. 

Noticeable, on top of that, is the amount of contagion towards other banks. In this case KBC, although itself not in trouble, lost also 4.7% or €1.6 bln in savings’ money.

Forget Italy; next to Greece, Spain remains the true problem zone of Europe

I said it on a number of occasions. Of course is Italy in big trouble with its state debt of 120+% of GDP and of course interest rates of 7% or more could create havoc in the Italian budget. But Italy remains an industrial super power and when their state debt remains under control, Italy will be OK in the future when the economy grows again. Next to Greece, the real sick man of the Euro-zone is Spain.

During the last week, there were two discomforting news messages on Spain in the Dutch financial newspaper Het Financieele Dagblad ( You will find the pertinent snips of both here:

The Spanish unemployment rose for the fifth month in a row. Almost 25% of the Spanish working population is unemployed. In 2011 the total unemployment rose by 7.9% and ended at 4.42 mln unemployed people. This was disclosed by data from the Spanish government, published this Tuesday, January 3.

Especially youth unemployment is a big problem. Almost 50% of the Spanish youngsters that are part of the working population is unemployed.

The budget deficit of Spain doesn’t amount 6% of Spanish GDP, but 8%. This means: more austerity measures.

The new Spanish government announced its austerity plans on Friday. The center / rightwing cabinet of PM Mariano Rajoy is ready for a tough battle.

The Spanish budget deficit was not 6% of GDP, as planned by Rajoy’s predecessor Zapatero, but 8%. This was announced yesterday by the new Spanish cabinet. Vice-PM Sáenz de Santamaría spoke after the cabinet council in an ominous tone of ‘the beginning of the beginning’ of a wide array of austerity measures. Cutbacks to the amount of €8.9 bln will already be carried through in Q1 in Spain.

Rajoy, whose Partido Popular won the elections at the end of November, announced earlier that €16.5 bln in austerity measures were projected in 2012. This amount will probably rise. Rajoy wants to reduce the state’s budget deficit to 4.4% of GDP at all costs at the end of 2012.

Finance Minister Cristóbal Montoro announced yesterday an increase of income tax rates; the lowest incomes pay 0.75% more and the highest incomes (> €300,000) pay 7% more. The wages of government officials are frozen, while state secretaries and top officials at ministries suffer an income reduction of 20%.

The cabinet didn´t state anything on the long-expected reforms of the financial sector and labor market. Rumors on the establishment of a so-called ´bad bank´ where debt of Spanish banks would be stored, are rising. Local Spanish banks, the so-called ´cajas´ didn´t write-off their real estate losses yet.

I love Spain and the Spanish people very much and I love being in this beautiful, friendly and historically interesting country. But Spain is in desperate need of a Marshall-plan 2.0 to reform and eventually fire up the economy. And it is definitely not in need of further austerity measures to the tune of €25.5 bln. 

This would be the kill-shot for the ailing Spanish economy (remember the Economic Death Spiral in my Outlook 2012 of December 29 ) and it could bring economic chaos in this country.

So European leaders, please look beyond the state debt and budget deficit dogmas and help the Spaniards and Greeks to recover their economy. But don´t help them by just throwing money at them; this would be totally useless. Help them to help themselves with economic reforms, stimulation of the manufacturing industry and the services sector and by reducing their state and private debt towards other countries and banks.

Commercial Real Estate in The Netherlands in a dead-end street

The FD wrote once again on the alarming situation in the Dutch Commercial Real Estate (CRE) market. This market seems more and more like the proverbial elephant-in-the-room that everybody tries to ignore. But if you look good, you see the grey hairy monster with its trunk, trumpeting for your attention.

Office buildings are much less worth nowadays. Many office building lost 25% in value and have often as much value as the ground they are built on. This was stated by real estate advisor DTZ Zadelhoff in a report published this Tuesday January 3.

Especially in the dull office areas alongside highways many offices are vacant. About a quarter of all office space is located at these kind of spots. Presumably these offices never get a tenant again and therefore the owners should write-off substantially.

´Buildings are rated much lower than five years ago´, according to chairman of the board of DTZ Zadelhoff Cuno van Steenhoven. ´Sometimes it is hardly more than the ground value. In some cases demolition is the best solution´.

He estimates the loss of value to €10 bln. This is based on the depreciation since mid-2008, just before the credit crisis started.

However, not all CRE investors have to worry. The company mapped places where investors have good opportunities and places where they have not. Good locations are f.i. the Amsterdam Zuidas (South Axis), the zone near Utrecht Central Station and the center of Groningen.

Roughly three-quarter of all offices is in this kind of high-potential areas. Owners might have to refurbish the buildings to get a tenant, but there is no need for write-offs. The other quarter is futureless. These are offices in the satellite-cities, like Zoetermeer or Nieuwegein. Demolition or redesign of office buildings to hotels or condo´s are more favorable options.

Vacancy among offices is already rising for years. The share of vacant building rose by 0.2% to 14.1% in just a year. DTZ Zadelhoff itself is also mediator for many of these vacant offices. The company begged municipalities to stop with handing out new building ground. The more new office buildings are built, the higher the total vacancy will become.

I wrote many articles on CRE, among others in my SMS (21). Please check out my other articles by entering < (CRE) > in my search engine. Although I generally agree with the statement of DTZ Zadelhoff, I consider them way too optimistic where it concerns the 75% high-potential areas (first red paragraph).

On the Amsterdam Zuidas, mentioned above as a high-potential area, the vacancy rate was about 15% at the beginning of this year and I have no reason whatsoever to think that this number changed favorably. Besides that, Zadelhoff is in the CRE-business, so it doesn’t want to paint a too grim picture of its core business. You can take my word on it that the situation in Dutch CRE is in reality even more desperate than described in this article.

I do totally agree with the second red paragraph that municipalities should stop selling building ground. But sadly enough, the municipalities won’t, as it would exclude them from a important source of income and puts them under severe pressure from the building lobby. This means that the building frenzy will continue for some years. So expect the CRE vacancy rate to rise further in the near future.

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