Gonzalo Gortázar moved quickly to stem the risks to CaixaBank
With its operational headquarters and heritage in Barcelona, CaixaBank is at the centre of the Catalan storm. This situation looked particularly worrying in October, when regional voters clashed with police over an illegal referendum on independence from Spain.
The bank’s subsequent decision to relocate its registered office from Barcelona to Valencia has proven effective, says chief executive Gonzalo Gortázar, as CaixaBank took what he says was a rapid and non-political step to stem risks to the institution.
In 2018, the nationalist crisis continues to make headlines and, since the European Commission backed Spanish unity late last year, investors and depositors have had to recognize that independence from Spain would entail a Catalan exit from the euro.
CaixaBank and its foundation have long been important players in Catalan business and society. It has taken advantage of the fallout from Spain’s financial crisis to bulk up across the country, reducing the weight of Catalonia in its business. However, redomiciling was necessary as, at the height of the crisis, CaixaBank was faced with a sell-off in its shares and the sudden prospect of a deposit flight.
“Banking is built on trust, so we needed to take a decision rapidly”, says Gortázar. “Those irrational fears disappeared surprisingly quickly, as quickly as they emerged.”
By the end of 2017, the bank’s deposits were 3.5% up on the year before. A reversal of the 0.2% fall in deposits in the fourth quarter may be less evident in the first quarter of 2018 because of seasonal factors, although it will certainly be up on the previous year, he says.
“November and December were great months for business volumes and profitability. The bank is as if this had not happened.”
Gortázar – born in Madrid – brushes aside the question of whether the redomicile brought a further hit to its franchise, this time among nationalists who might have seen it as a desertion. It was clearly just “aimed at preserving the interests of our clients and shareholders,” he says. The move necessitated no movement of employees.
Hundreds, if not thousands, of Catalan businesses have followed suit. Indeed, Spain’s fifth biggest bank by assets, Banco Sabadell, moved its registered office from the Catalan town of Sabadell to Alicante, in the Valencia region, a few days before CaixaBank’s decision on October 6. For CaixaBank, moving the domicile down the coast to Spain’s third-biggest city was an obvious choice after its 2013 merger with Banco de Valencia.
Even now, the political and financial elite in Spain remain nervous about the Catalan situation. The pro-independence side gained a majority in the regional parliament in an election in December. The arrest in Germany in March of the former Catalan president, Carlos Puigdemont, sparked more protests in Catalonia. Nevertheless, with prominent pro-independence politicians under arrest or in jail, independence still feels like a more remote possibility compared with October.
Gortázar says there is a “feel-good factor” in Spain, thanks to the economy.
CaixaBank, in fact, is performing better than some of its rivals, including the other big Spanish retail-focused lender Bankia – even though Bankia has a far smaller proportion of its business in Catalonia, where the political crisis has hurt the regional economy. CaixaBank’s return on equity is close to 10%, versus about 6% at Bankia, while only 18 months ago both were close to 7% ROE.
CaixaBank has benefited from growth in Spanish insurance and asset management, says Javier Bernat, equity analyst at GVC Gaesco Beka. Bankia’s chief financial officer, Leopoldo Alvear, adds that Bankia’s revenues are more reliant on mortgages, making it more sensitive to negative interest rates.
Both banks are hopeful that 2018 may be the last year of negative ECB rates and private-sector deleveraging in Spain, as the after-effects of Spain’s pre-2008 property boom gradually fade. Alvear says a 50 basis point rate hike will boost Bankia’s profit by 20%.
“We’ve suffered the worst of rate cuts, so we are expecting to enjoy the best of rate hikes,” he says.
Despite better growth in business and consumer lending, there is little hope for rapid growth in overall Spanish loan volumes over the next few years, as mortgage books will continue to contract slightly. But the impact on new mortgage origination volumes of a surprisingly rapid drop in unemployment means mortgage books, which remain the most important loan segment, could shrink less than feared.
“By the end of 2020, Spain’s private-sector leverage will be in line with the EU average,” says Alvear. “There’s still a gap, but it is closing.”
Meanwhile, Spain’s recovery is helping a similar rebound in neighbouring Portugal, which is more good news for Gortázar. Portugal’s economic recovery has quietened doubts about the wisdom of CaixaBank’s purchase of one of Portugal’s biggest banks, BPI, completed in early 2017.
“Two years ago, people thought we were crazy,” Gortázar says of BPI’s exposure to Portuguese growth. “Now they understand it was the right move at the right time.”
After agreeing a cost-reduction plan with BPI’s trade unions, the challenge is to integrate BPI’s product factories – such as asset management, insurance, cards and investment banking – and boost its revenues.
BPI’s Angolan business, BFA, has brought more uncertainty to CaixaBank’s revenues, however, following a change of government in the southern African nation and a subsequent move to unpeg the kwanza from the dollar late last year. The Angolan political shake up could delay its planned sale of BFA, despite market rumours about ECB pressure to move forward with the disposal.