Santander CEO Derides Surge in Spain Defaults: Mortgages

Alfredo Saenz del SantanderEscriben Charles Penty y Estéban Duarte para Business–JPMorgan Chase & Co. (JPM) (JPM), the world’s largest bond underwriter, predicts that Spanish mortgage arrears will surge as unemployment rises. That’s also the view from the international debt market, which has driven up yields on Spain’s bonds in a bet the country will have to bail out banks.

In Spain, Banco Santander SA (SAN) Chief Executive Officer Alfredo Saenz said yesterday that’s nonsense. “Mortgages get paid in good times and in bad,” he said in a news conference at the bank’s headquarters outside Madrid. “Anyone raising this problem as one of the issues for the Spanish financial system is saying something stupid.”

There’s more at stake than the credibility of the CEO of the country’s largest lender. If he’s right, investors betting against his bank and the country will lose. If he’s wrong and delinquencies rise, that will weaken the nation’s banks as Spain’s Prime Minister Mariano Rajoy seeks to restore the recession-hit economy. Concern about Spanish lenders already has helped push the country’s 10-year borrowing costs to about 6 percent, adding to concern that borrowing costs may reach levels that prompted bailouts for Greece, Ireland and Portugal.

Saenz’s comments underscore a growing gap between Spanish banks’ statements about the mortgages they hold and forecasts such as those by the JPMorgan analysts for further losses as unemployment exceeds 24 percent. Santander said the ratio of defaults on its home loans fell in the first quarter, while the Bank of Spain said it’s still below 3 percent nationally.

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