An activist from the Mortgage Victims' Association takes part in a protest outside the Supreme Court in Madrid in November
Public opinion is vital to a bank’s success, wherever it is based, but it is particularly important in Spain.
This is because the business models of Spanish banks revolve more around retail and because domestic retail investors – often clients – hold an unusually high proportion of those banks’ own share capital.
BBVA and Santander might rely less on domestic retail investors than on their international business, but Santander has Europe’s biggest shareholder base at more than four million, the vast majority of which are based in Spain.
Retail shareholders’ proportion of capital is close to 40% at BBVA and Santander, while the proportion is even higher at smaller lenders such as Banco Sabadell and Bankinter.
Poor retail confidence is therefore all the more worrying in Spain, and particularly because Spanish banks still look relatively short of capital: potentially raising the prospect of a future capital raising that might either need to rely on retail, or anger retail clients for diluting their shares.
Spanish banks have suffered particularly hard reputational hits since the crisis – often due to turning too aggressively to retail clients for capital
For example, Santander and BBVA were among the biggest banks that would have dividend restrictions in the European Banking Authority’s adverse scenario in its stress test, published early in November.
Perhaps Sabadell will turn again to retail clients, especially to raise enough capital to turn around its British operation in TSB.
Even compared with the rest of Europe, Spanish banks have suffered particularly hard reputational hits since the crisis – often due to turning too aggressively to retail clients for capital.
Banks and the government have had to compensate retail customers for hundreds of millions of euros because of mis-selling retail clients their shares and subordinated bonds.
And customers have complained about being hoodwinked into buying hybrid debt dressed up as high-yielding deposits, or to taking shares in banks already on the brink – most recently at Banco Popular.
The latest battle over mortgage taxes in Spain shows their image and operating environment is not getting any better.
The government issued a decree to switch the norm so banks pay taxes on registrations of mortgages (Actos Juridicos Documentados) instead of borrowers, but the Supreme Court’s indecisiveness over the matter made it more of a debate.
The banking lobby argues this will end up increasing prices for clients, but Bankinter’s pledge not to pass the costs onto customers, according to Berenberg, undermines this claim.
Taxes and other hits such as this could contribute to a vicious circle, with taxes weighing on banks’ shares held by vast numbers of citizens, further obliterating popular support for the sector.
Meanwhile, it is hard not to wonder whether Spanish banks’ relatively low capital levels, and large branch networks relative to the population, are partly due to the widespread ownership of their shares by older branch- and dividend-obsessed retail clients.
However, if management’s focus is now switching to higher capital and efficiency – to appease regulators and institutional investors – it could be another snub to their retail investors, and by extension to the population at large.
In the longer term, banks’ internationalization and post-crisis instability, their lack of growth and, above all, public mistrust will only accelerate the demise of their traditional local branch-based shareholder support: whether in Spain, in Italy’s mid-tier or in mutual banks across Europe.
In the meantime, this looks set to be an acrimonious breakup.