Not Greece, Spain bigger headache for Euro mkts: Silverwind

Italian industrial production fell far more than expected in April and reacting to the negative data, European markets slipped. The CAC, DAX and FTSE were in red. In an interview with CNBC-TV18, Darren Sinden of Silverwind Securities said, the Italian data is just one amongst a series of negative data points that led to a fall in markets.

Sinden further adds that they are still bearish on the European equity markets and anticipates further downside. With Spain expected to make an aid request for recapitalizing its banks, Sidden is of the view that the bailout package that is being discussed is somewhere between 50-60 billion euro. But, this won't be enough to resolve the problems. At best, it will buy Spain some time, opines Sidden.
"We don't think that's anywhere near enough to resolve the problem. It might buy the Spanish banks some time. Realistically, they are on the hook for about 400 billion euro of property loans and given the situation of the Spanish economy, we think 75% of those loans will ultimately be considered non-performing or bad loans. We are talking about up to 300 billion euro of potential losses in the Spanish banking sector over the medium-term. So plugging the gap with 60 billion euro is not really going to be enough," explained Sidden.
Looking at the markets, Sidden also considers Greece to be something of a side show now and Spain to be a bigger headache for the European markets. Below is the edited transcript of his interview with CNBC-TV18. Also watch the accompanying video. Q: A word on the data that just released, the belief is that the Italian data is leading the market down; do you think it was disappointing enough? What are the other key factors you are watching out for in the near-term?
A: The Italian data is just the latest in a series of negative data points we have had. We had the downgrade of Spain yesterday from Fitch. We have seen the French GDP for the second half of the year downgraded as well and if there is any correction in France, it is likely in 2012. All these things combined together are leading the markets lower.
Markets had a chance to reflect on what happened yesterday. The Chinese rate cut was obviously unexpected, that was originally seen as positive news but we don't think that was an act of altruism on the part of the Chinese. We think it was one of desperation. Their economy is slowing much quicker than they would like and people have to price it into their investment decisions now. Q: Now we are getting news that Spain is expected to make an aid request for recapitalizing its banks this weekend. That's the IBEX coming up for you and so clearly a lot of the indices are seeing a bit of pain. What would you watch out for in terms of specific events in Europe and are you expecting more serious downsides to the European equity markets?
A: We are still bearish and we do anticipate further downside. For argument's sake, the DAX is still up 3% on the year. In terms of what we should look for, the size of any bailout package, the figures we have been talking around 50-60 billion euro. But the highest number is perhaps regarded as a 100 billion euro.
But we don't think that's anywhere near enough to resolve the problem. It might buy the Spanish banks some time. Realistically, they are on the hook for about 400 billion euro of property loans and given the situation of the Spanish economy, we think that 75% of those loans will ultimately be considered non-performing or bad loans.
We are talking about up to 300 billion euro of potential losses in the Spanish banking sector over the medium-term. So plugging the gap with 60 billion euro is not really going to be enough. Its not really going to be enough. Q: Do you expect that in the run up to the Greek election, there could be more severe losses for the Euro?
A: When we get to that June 17 Greek election, we will see whether the Greek people are pragmatic and vote for a moderate government or they follow through and vote for what is being regarded as the loony left. To be honest, Spain is coming to the burrow now.
 I think Greece is something of a side show, relatively small compared to the money that is at stake in Spain. It would have been good if Greece left the euro, if the selected government were to be returned. But at the same time, Spain is a much bigger headache for Europe and that is the issue most people will be focusing on over the next week or so.