Not since the global financial crisis began in 2008 has there been such a sense of urgency in Spain about the need to restructure the country’s struggling network of unlisted savings banks, according to Spanish bankers and financial analysts.
Even before the tightening of the European interbank market last week as a result of contagion from the Greek sovereign debt crisis, most of the smaller cajas de ahorros, unlisted savings banks usually influenced by regional politicians, were finding it impossible to raise wholesale finance except via the European Central Bank.
The cajas – between them, the 45 lenders account for about half of Spain’s financial system – have in aggregate been heading into losses as a result of the sluggish economy, bad loans connected to the property sector and a brutal war for retail deposits in which they cannot compete with listed giants such as Santander.
With large repayments due on the mortgage-backed bonds and other securities they sold to investors at the height of the property boom – debt maturities for banks and cajas amount to €85bn this year – the cajas are being forced to seek help from the state rescue fund known as the Frob and agree to mergers and cost cuts.
“Lots of bonds are maturing in the coming months,” said one fund manager operating in Madrid and Barcelona. “The big [lenders] have to pay a premium to refinance but the little ones can’t do that. They have no choice but to restructure.”
Spanish lenders were spared exposure to toxic US subprime mortgages thanks to prudent regulation and supervision by the Bank of Spain, and Spain has yet to spend taxpayers’ money on bank bail-outs.
But Spanish bankers say relief in the face of bank disasters in the UK and elsewhere engendered complacency and a reluctance to solve Spain’s own crisis in the form of bad property loans, especially by some of the cajas.
“Spain enters this process about 18 months later than neighbouring countries,” says Juan María Nin, chief executive of Barcelona-based La Caixa, the country’s third-largest financial institution. “The system in Spain was better provisioned and much better supervised. But we had our own subprime.”
Emilio Ontiveros, chairman of Analistas Financieros Internacionales, a research group, agrees. “In the countries that suffered most at the start of the crisis, the banking systems are better now than they were,” he says. “In Spain, the banking system is less good now than it was then.”
In a belated admission of the gravity of the Spanish banking crisis, José Luis Rodríguez Zapatero, the Socialist prime minister, and Mariano Rajoy, the Popular party opposition leader, agreed at a rare joint meeting last week to hasten the restructuring of the cajas and prepare a law to improve their transparency and ownership structures.
“By June 30, we’ll have the definitive restructuring map for the cajas,” Mr Zapatero said, in a reference to the central bank’s determination to reduce the number of cajas by at least a third through a series of mergers.
Led by Santander, which is partly protected by its overseas expansion and is the biggest bank in the eurozone by market capitalisation, Spanish commercial banks are eager to exploit the cajas’ difficulties to increase their domestic market share.
To attract new customers, banks are offering interest of up to 4 per cent on deposits, a rate higher than the one at which they currently lend for new home mortgages and more than most cajas can afford.
Santander, meanwhile, is eager to buy a business in Barcelona and Madrid, and could do so either by purchasing branches sold by distressed cajas or by buying stakes in the cajas themselves if their legal status is changed to allow this under the new law.
But even the strongest Spanish banks are not immune to the damage caused by the collapse of the home construction bubble and the subsequent stagnation of the Spanish economy. Santander’s share price has fallen by more than a third since a peak in January.
In the domestic market, both banks and cajas seem to be locked into a vicious circle in which unemployment (above 20 per cent of the workforce) causes more loans to turn bad, the banks therefore restrict credit, and the credit squeeze in turns kills more small businesses and increases unemployment.
“I think the problem will not just be refinancing through the wholesale market,” says Mr Ontiveros. “Beyond that, the problem for the Spanish banking system is the close link between unemployment and the quality of assets.”