Spanish Building Societies Continue to Struggle
July 24th, 2009
After almost a year of tentative talks, flirtatious gestures and failed courtships, Spain’s cajas – the unlisted, regional savings and loans institutions – are finally knuckling down to the serious business of survival in the face of mounting bad loans and funding problems.
While prudent regulation and the banks’ retail focus may have saved the country’s financial system from the worst of the US subprime fallout, they have only managed to forestall the inevitable shake-out forced by the collapse of the housing market.
Although created nearly two centuries ago as micro-lenders to the working classes, the cajas in recent years have been enthusiastic financiers of residential construction and home-buying, as well as direct equity investors in the sector.
As the rate of non-performing mortgages and corporate failures creeps up, the rhythm of negotiations between the stronger cajas and their weaker cousins intensifies.
One of the more exposed institutions has already fallen: Caja Castilla la Mancha was taken over by the Bank of Spain and recapitalised in March. One of its mooted rescuers – Andalusian lender Unicaja – is now leading another life-saving operation, and is in talks on a tie-up with two other entities in Spain’s second-largest and most populous region.
That activity, in what is shaping up to be a drawn-out process of consolidation, fits with the geography of the Spanish crisis. With more coastline than all the other regions – and less industry than most – Andalusia has been more susceptible to the sort of rampant urban overdevelopment and municipal corruption that helped precipitate the housing crash.
Of the estimated 1m unsold new homes in Spain, nearly 20 per cent are in the region. About half the equity portfolio at Cajasur, one of the lenders in talks with Unicaja, was concentrated in the property sector, while its bad loan rate – about 8 per cent of total assets – is about double that of Unicaja.
Even the latest assistance from the Bank of Spain, which last week relaxed provisioning requirements for one category of Spanish property loans, would not have been enough to save the bank. Although an extreme case, there are other Cajasurs to be found among the 45 cajas scattered around Spain.
According to several accounts, the Bank of Spain has about 10 under special surveillance. With these in mind, the government has set up a rescue fund, capitalised initially with €9bn ($12.7bn), to inject fresh equity into newly merged entities or those deemed able to battle it out alone.
In spite of the inevitable consolidation, branch closures and job cuts will be limited at first: with Spain’s unemployment rate at close to 20 per cent, the highly political cajas will be reluctant to add people to the dole queue.
With regional politicians and local councillors distributed through the three tiers of corporate governance, the cajas have become, to varying degrees, platforms for pork barrel politics, regional power games and partisan bickering.
Crisis or no crisis, local politicians are loath to see their power diluted by counterparts from other regions or parties. While the pace of consolidation in the system is picking up, broader reforms of Spain’s regional savings banks could be a while longer in coming.
Chairman Fernando Conte’s premature disembarkation from Iberia, the Spanish flag-carrier, has raised hopes in Madrid that the protracted merger process with British Airways could move up a gear or two.
Although in favour of the tie-up with Iberia’s closest OneWorld partner, Mr Conte’s preoccupation with steering his airline through the global crisis had recently concentrated all his executive energy.
His decision to flag his planned retirement next year also unsettled some board members, who moved quickly to find a replacement and have him leave early.
Antonio Vázquez, the new chairman, seems made to order. The dapper, cigar-chomping 57-year-old helped negotiate Imperial Tobacco’s 2007 takeover of Altadis, the Franco-Spanish tobacco group of which he was chief executive. His knowledge of Iberia – he was a board member between 2005 and 2007 – and his enthusiasm for a fresh challenge after time off made him an ideal candidate.
Mr Vázquez also has the support of Caja Madrid, Spain’s second-biggest saving bank and the largest single shareholder in Iberia with 23 per cent. With everyone now on the same flight, we might see a merger agreed within the next few months
Story from Financial Times
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