| |
Headline: No hiding place for the Cajas
Source: Euromoney
Date: February 2000
Editor: Peter Lee
At first sight Spain's lucrative privatization programme seems to be over. Spain has provided nearly Pta4 trillion ($24.2 billion) in privatization receipts since 1996, making it Europe's largest and most dynamic sell-off of state assets. With the exception of airline Iberia, state privatization agency Sepi has emptied its portfolio of large public companies. Now, though, it looks as if another Pta10 trillion or so of work for investment bankers may be waiting in the wings.
Bankers, businessmen and multilateral institutions are turning their attention to Spain's 51 cajas de ahorros (savings banks), which account for half the banking system. Pressure is mounting on the centre-right government to open them up to private capital. The IMF and OECD have recommended privatization and even the powerful Spanish business confederation, Círculo de Empresarios, says it's wrong for "half of Spain's financial system to be lacking ownership and under the control of political parties".
Further pressure is likely to come from private-sector banks that would welcome the opportunity to expand their retail operations by acquiring cajas. They cannot under current legislation which perversely allows the cajas to take over banks. The cajas have not hesitated to take full advantage of their protected mutual status by snapping up banks at the rate of one a year for the past seven years, including the Spanish operations of UK bank Abbey National and a local Deutsche Bank subsidiary. Bankers complain that the system makes a mockery of the level playing field.
Steve Hussey, a director of rating agency Fitch IBCA, points out that bank consolidation in Spain has gone about as far as it can and the banks are looking at the cajas as a natural road to domestic expansion. "They will probably lobby the European Commission in Brussels to take action on the cajas on competition grounds," he says.
The cajas are a powerful political tool as their board members are local councillors of the party in power in each region. The government uses the cajas to provide soft loans to local enterprises and also to lend support to officials appointed to privatized companies.
"There is no way one can justify from an economic standpoint the current structure of the cajas," says Mikel Abasolo, head of research at Spanish broker Ahorro Corporación. "They do not play any public role and only political interests are keeping them from being privatized. They must be under pressure from the general trend towards banking consolidation in Europe and the need to achieve economies of scale to increase their efficiency. We could end up with one caja for each region. Then rather than share political power with neighbouring cajas the larger ones could opt to go public."
The cajas argue there is no convincing reason to change their legal status. As of last November the sector had grown its year-on-year retail deposit base by 15.8% to Pta34.5 trillion.
The cajas have laid down plans to expand their branch network by some 700 this year after adding 240 to it in 1999. Their margins and returns are generally healthier than those of the private-sector banks and they can count on the unshakeable loyalty of their customer base. Some are even large enough to operate internationally, such as Barcelona-based La Caixa.
"The cajas are well capitalized, they operate on wide margins and they are efficient entities," says María Cabanyes, credit analyst at Moody's in Madrid. On fundamentals alone there is no justification for changing their legal status."
A Madrid banker who advises financial institutions says that Spanish as well as foreign investment banks have been "running all over Spain" in recent months trying to convince the cajas' management of the benefits of public listing.
"At the end of the day it's a question of public versus private sector," says Iñigo Lecubarri, European banking analyst at Salomon Smith Barney. "Most people would argue that banking should be in the hands of the private sector and that there is no good reason for the existence of public-sector financial institutions in the 21st century.
Jules Stewart
|