Bye-bye to Spain’s savings banks

Once there were 45, now there are 17. And within a few months there could be even fewer.

Spain’s savings banks, or cajas, a common feature of the country’s financial landscape for almost two centuries, are becoming an endangered species. The smallest and weakest have fallen first, gobbled up in a series of inter-bank mergers and acquisitions triggered by their exposure to the worst of the fall-out from the international financial crisis and the popping of the Spanish property bubble. New rules introduced by the Spanish government will ensure the consolidation continues apace.

The government will require all lenders to raise core-capital levels to 8 percent by September. However, in the case of entities not listed on the stock market or those with a high dependence on wholesale funding –i.e. many of the savings banks– the target will be as high as 10 percent. That is far higher than current regulatory rules almost everywhere else in Europe. Those banks that fail to comply face being nationalised.

Just how much money the cajas will need is a question of open debate. The government reckons €20 billion, though many analysts say the real figure is closer to €50 billion and some put it as high as €100 billion.

“Recognition of the insufficiency of capital buffers in the system is a step in the right direction,” Barclays Capital Research said in a report. But the Barclays analysts also expressed doubts that the weak saving banks will manage to raise the necessary funds in the market and estimated the total amount needed at €46 billion.

The savings banks have a few options open to them to meet the requirements. Many are merging, some are selling assets, several plan to list on the stock market and all will find themselves at the mercy of investors, among them Spain’s bigger, less debt-burdened domestic listed banks and foreign entities.

The upheaval among the cajas has already attracted interest from Asian and Gulf sovereign wealth funds, foreign banks, among them Barclays, and Spanish listed banks such as BBVA, which have all expressed interest in new investments or possible gains in market share.

Caixabank, Banco Financiero de Ahorros and Banco Base -three new big banks created in the recent wave of mergers among the cajas- intend to list on the stock market in the summer.

Comply, or be nationalised…

Prime Minister José Luis Rodríguez Zapatero has expressed confidence that the majority of savings banks will attract private capital to meet the new regulatory requirements, but, he warned, “some will see their viability compromised and there the state will enter.”

Only the strongest savings banks will survive in their present form, he said, and “they will be almost unrecognisable.”

Executives at some of the cajas are angered by what they see as the imposition of “Anglo-Saxon” banking practices and official discrimination in favour of listed banks.

“The effort that is being asked of the savings banks in terms of solvency is so great that it puts the level required above that achieved by many European financial institutions,” the Spanish Confederation of Savings Banks said in a statement.

Until the crisis, every major city –and several minor ones– had their own locally oriented brand of caja with branches across the surrounding region, offering loans and deposits outside of the regulatory framework that governed listed banks.  Often influenced by local politicians and union leaders, they enhanced their profile within their local communities through the funding of social welfare and agricultural projects. But as Spain’s construction and real estate sector boomed at the end of the 1990s they increasingly delved into riskier –and at times murky– loans to developers and private individuals, putting them at greater risk when the market soured. They became, in effect, the weakest link in Spain’s financial system, focusing the attention of international investors worried about Spain’s debt and deficits amid the Irish and Greek bailouts last year.

Provisions are around 30 percent of souring real-estate assets for those cajas involved in the recent wave of mergers, but in light of the potential for further deterioration, some analysts reckon that a figure of around 50 percent would be more prudent.

The cajas are due to unveil their exposure to the country’s collapsed property sector by the end of February under a central bank-led plan to improve transparency.