Some Spanish Savings Banks Want More Time to Recover
Spanish savings banks, which have been ordered to raise more capital by the government, are facing an uphill struggle to persuade investors to help them improve their balance sheets.
Despite mergers and cost-cutting that some investors believe have left them lean and ready for a revival in the Spanish economy, the banks, known as cajas, must contend with competition from commercial banks — and from each other — as they search for outside investment, probably through initial public offerings.
As part of an effort to clean up the banking sector after the financial crisis, Elena Salgado, Spain’s finance minister, said last month that all financial institutions would be forced to meet a stricter core-capital requirement, a main measure of a bank’s soundness, of 8 percent by the end of September.
That level could be raised to 10 percent for cajas that neither list their equity nor manage to find significant private investors.
Ms. Salgado’s plans were expected to be formalized by the government Friday, despite last-minute pleading for leniency by some cajas.
They argue that stricter capital requirements not only put unlisted entities at an unfair disadvantage but also go beyond regulatory requirements elsewhere in Europe. Some also want the deadline to be pushed well past September.
For years, until the start of the financial crisis and the ensuing collapse of Spain’s real-estate sector, the cajas had flown under investors’ radar screens, focusing on running a vast branch network that accounts for half of Spain’s retail banking sector and providing much of the financing for Spain’s decadelong construction boom.
The crisis brought to the surface a harmful blend of mismanagement, reckless real estate lending and exaggerated influence from politicians — and, in one instance, the Catholic Church.
Some smaller cajas had to be rescued by a state-run fund.
Last year the cajas, already under pressure from the government, engaged in a round of mergers that cut their number from 45 to 17.
The consolidation was designed to strengthen the most crippled institutions, but it has not reassured financial markets that the banking sector will be able to absorb the cost of any further decline in the real estate market.
About 47 percent of the Spanish banking sector’s €320 billion, or $433 billion, commercial real estate exposure is related to problematic assets, which have a provisioning coverage of 31 percent, Daragh Quinn, banking analyst at Nomura, estimated in a report published Thursday.
“It’s going to be a challenge to raise equity” for the cajas, Mr. Quinn said, adding that the success rate probably would be correlated to the discount that each caja would be willing to offer investors compared with their peers in commercial banking.
Still, investment bankers and consultants who are advising the cajas insist that foreign investors, led by large funds like Fidelity, are ready to put money into the cajas, amid a broader Spanish market rebound and dwindling concerns over whether Spain could follow Greece and Ireland in requiring emergency funding.
“The sovereign debt crisis seems to be behind us and there is now a real window of opportunity for the cajas to receive foreign financing,” said Miguel Angel Martín, a partner in the advisory division of KPMG in Spain, who has worked on several of the recent caja mergers.
“The funds that visited Spain last year were just trying to understand the situation and what kind of transformation and risks the cajas faced, but they are now coming back with much more serious intentions to invest in their capital,” he said.
The cajas also offer the prospect of substantial cost cuts and operational streamlining once the merger agreements are implemented. The agreements foresee an average staff reduction of about 11 percent.
The new institutions, however, will be competing for funding at a time when even the strongest Spanish institutions have been struggling to raise money from the capital markets.
“We’re now talking about a stampede by the cajas and that means a real risk of overcrowding,” said Gonzalo Díaz-Rato, a partner in Madrid at Gala Fund Management.
“The cajas all have equity stories that are very similar and defensive and they’re all trying to convince simultaneously investors whose overall perception of Spain remains pretty negative.” Mr. Díaz-Rato said his fund would not be involved in any initial round of financing for the cajas but might intervene at a later stage on behalf of some Middle Eastern clients.
In the race to raise more capital, La Caixa, a caja based in Barcelona, generally considered to be the most nimble of the bunch, has stolen a march on its rivals.
Only days after Ms. Salgado’s announcement, La Caixa said it would transfer unlisted banking assets into Criteria, a company listed in Madrid that La Caixa spun off in 2007 and still controls.
The move should leave Criteria, renamed CaixaBank, with a core capital ratio of 10.9 percent, which La Caixa said would be the highest among the major Spanish institutions.
Two other large savings bank groups are planning initial public offerings this summer: Banco Financiero de Ahorros, a seven-member group led by Caja Madrid, and Banco Base, formed from the four-way merger of Caja Cantabria, Cajastur, Caja Mediterráneo and Caja Extremadura.
Among smaller anticipated listings is that of Banca Cívica, another four-member group.
Cívica told the Spanish market regulator this month that it would float between 25 percent and 40 percent of its equity before the autumn.
Not all the cajas are seeking salvation in a listing.
Unnim, formed by a merger of Caixa Sabadell, Terrassa and Manlleu, said this month that it would raise directly from its retail clients two-thirds of the €250 million in capital it needed to avoid a rescue by the state restructuring fund that was created in 2009 and has injected about €12 billion in ailing institutions.
Meanwhile, the heads of commercial banks like Santander, Banco Sabadell and Banco Pastor expressed an interest this month in investing in cajas to gain retail market share.
For instance, José María Arias, Pastor’s president, said last week that he had been seeking advice from investment bankers ahead of a possible deal.
“We will take advantage of the opportunities that present themselves as a result of the restructuring of the financial sector,” he said.
Given that Pastor was the Spanish commercial bank that came closest to failing the European banking stress tests last July, such a pledge could prove wishful thinking.
In another sign that intentions might not translate into transactions, JC Flowers, the U.S. buyout firm, recently shelved a planned investment in Banca Cívica.
A final caveat for investors concerns political control over the cajas. Although the revamped cajas will be run by professional bankers, the overhaul kicked political appointees upstairs, to the boards of the newly formed entities.
“Removing political control over the cajas is not going to happen overnight,” said José Luis Santos, senior manager at KPMG in Spain.
He added, “I do think that political influence over the cajas will get gradually diluted as private investors step in.”