Phase 2 of the Sovereign Crisis:Spain’s Sovereign Debt and Banks Under StressDeutsche Bank Securities Inc., a subsidiary of Deutsche Bank AG, conducts investment banking and securities activities in the United States.June 2010Tom JoyceDebt Capital Markets Strategist(212) 250 - 8754Tom.joyce@db.com 2Spain: Phase 2 of the Sovereign Credit Crisis?"Dealing with a banking crisis was difficult enough, but at least there were public-sector balance sheets on to which the problems could be moved. Once you move into sovereign debt, there is no answer; there's no backstop." ~ Mervyn King, Bank of England Governor (2010)“The gratification of wealth is not found in mere possession or in lavish expenditure, but in its wise application.”~ Miguel Cervantes, Spanish Novelist, Poet, and Playwright (1585)“The Bank of Spain intends to reveal the deterioration estimated, the consequent capital requirements, and the capital funding committed, to provide the markets with a perfectly clear idea of the situation of the Spanish banking system.”- Miguel Angel Gonzalez, Bank of Spain Governor (2010) 1.Introduction2.Spain Under StressA.Spain’s Sovereign Debt CrisisB.Spain’s Banking CrisisContentsPrefaceWorld Cup 2010: Spain Advances (Barely) PREFACEWorld Cup 2010: Spain Advances (Barely) 5World Cup 2010: Spain Advances (Barely)First Round Group ResultsAlthough Spain was regarded as one of the favorites to win the World Cup (#2 FIFA ranking), their journey to the “Round of 16”proved to be tougher than expectedGWT LGFGADIFPTSUruguay 3210404 7México 3111321 4Sudáfrica 311135‐24Francia301214‐31GWT LGFGADIFPTSArgentina 3300716 9Korea Rep. 311156‐14Greece310225‐33Nigeria301235‐21GWT LGFGADIFPTSUSA3210404 7England 3111321 4Slovenia 311135‐24Algeria301214‐31GWT LGFGADIFPTSGermany 3201514 6Ghana3111220 4Australia 311136‐34Serbia310223‐13GROUP AGROUP BGROUP CGROUP DG W T L GF GA DIF PTSNetherlands3300514 9Japan3201422 6Denmark 310236‐33Cameroon 300325‐30G W T L GF GA DIF PTSParaguay 3120312 5Slovakia 311145‐14New Zealand3030220 3Italy302145‐12G W T L GF GA DIF PTSBrazil3210523 7Portugal 3120707 5Ivory Coast 3111431 4North Korea3003112‐11 0G W T L GF GA DIF PTSSpain3201422 6Chile3201321 6Switzerland 3111110 4Honduras301203‐31GROUP FGROUP GGROUP HGROUP ENOTE: Teams in bold will advance to next round 6“Peripherals” Match-up: Spain and PortugalRemaining Match-ups and ScheduleThe round of 16 matches begin on Saturday, June 26, with the USA suffering a disappointing loss with yet another sleepy start, and a suspect defenseSpain and Portugal were the only two European sovereign “peripherals” to advance, and will face one another on Tuesday, June 29thGreece and Italy failed to advance to the Round of 16, and Ireland did not qualifyRound of 16Quarter FinalsSemi FinalsGhanaS. KoreaUruguayUSABrazilNetherlandsSlovakiaSpainPortugalGermanyParaguayEnglandJapanMexic oArgentinaChileThird PlaceFinalCHAMPIONJune 26June 26June 28June 28June 27June 27June 29June 29July 2July 2July 3July 3July 6July 7July 11July 10GhanaUruguay“Being world champions, well...that is still a long way down the road.”- David Villa, Spanish National Team Player (2010) 7Participating Countries: FIFA World Cup Statistics *Billion US Dollars (2009)** Goals scored at World Cup 2010, as of June 25, 2010*** Previous World Cup appearancesGDP* Population Rank Goals** Apps.***USA$14,256309.61449Japan$5,068127.44544Germany$3,35281.86517England$2,20051.48213Italy$2,11860.25417France$2,10865.410113Brazil$1,574192.31519Spain$1,46446.02213Australia$1,19322.42033Mexico$1,085111.218314Netherlands$79516.6459Switzerland$4957.82619Greece$33111.41222Argentina$31040.17715Denmark$3095.53534South Africa$28749.39033NationGDP* Population Rank Goals** Apps.***Algeria$25334.93103North Korea$25334.910612Portugal$22811.3375Nigeria$173152.22034Chile$16217.11528New Zealand$1184.47822Slovakia$885.43849Slovenia$493.02332Uruguay$443.517411Serbia$437.316211Paraguay$296.33038Korea Republic$2824.14758Cote D’Ivoire$2320.62742Cameroon$2218.91926Ghana$1523.83222Honduras$57.84002Nation 8Participating Countries: Key Economic Stats*Billion US Dollars (2009)** Government revenues – expenditures (2009)20092009GDP* Population Debt/GDP Budget**USA$14,256309.652.9% ($1,701.0)Japan$5,068127.4191.1%($383.0)Germany$3,35281.877.2%($142.1)England$2,20051.468.5%$312.1Italy$2,11860.2115.8%($107.9)France$2,10865.479.7%($216.0)Brazil$1,574192.346.8%$0.0Spain$1,46446.050.0%($115.9)Australia$1,19322.418.6%($34.8)Mexico$1,085111.237.7%($20.4)Netherlands$79516.662.2%($37.1)Switzerland$4957.843.5%$1.5Greece$33111.4115.1%($36.5)Argentina$31040.149.1%($1.9)Denmark$3095.538.5%($0.2)South Africa$28749.335.7%($11.4)NationGDP* Population Debt/GDP Budget**Algeria$25334.910.7%($5.1)North Korea$25334.944.3%($0.1)Portugal$22811.375.2%($14.9)Nigeria$173152.217.8%($7.6)Chile$16217.19.0%($6.8)New Zealand$1184.429.3%($7.0)Slovakia$885.437.1%($5.6)Slovenia$493.034.0%($2.9)Uruguay$443.55