A map of the Spanish banking system

La Caixa building

The recent visit of the troika to Spain has given rein to all kinds of speculation about a possible redesign of the Spanish banking map.

On December 1 the bad bank could start running and the auctions of Banco de Valencia, NCG Bank and CatalunyaCaixa, would accelerate, although the IMF would insist on the need to liquidate no-viable banks. The Spanish government didn’t take this into account in the beginning, but it seems a crucial topic for those who want to design the banking map of the future.

In 2009 the government adopted a first financial reform that put on the table the need to inject money into the banks, and led to the creation of the bank restructuring fund (FROB). Since then, the Spanish financial system has undergone a revolution: the number of banks has been reduced–the cajas and SIPS have dissolved–to the current 17. This figure will be reduced soon without the Bank of Valencia, Catalunya Caixa or NCG Bank. And by the end of 2013 there shall not be more than ten, which even is considered excessive by some representatives of the banking sector.

A fact that will remain for history and that no other country had dared to address: the cajas, a century-old institution that once was respected and respectable, have been found out to be the great responsible for much of the financial disaster that Spain has been suffering for years.

After the third financial reform approved in Madrid, the number of cajas turned into banks has gone from more than 50 to 9, some of which don’t even have a name, yet.

Buyers, domestic and foreign entities, have marked preferences depending on the amount of variables playing in an operation of purchase, absorption, acquisition, merger or any other form. Some analysts believe that a bailout could benefit those banks who have favoured from public aid instead of the “most solvent”.

But before starting any merger process it is necessary to comply with certain rules. There is a road map that the entities must inevitably follow. The first step is to present a credible and viable future plan. Later, these plans must be accepted by the Bank of Spain and the rest of the authorities concerned with the rehabilitation of the sector. Then, the bad bank comes into operation. Then, it will be time to talk about feasibility.

This is the banking sector scheme according to Oliver Wyman consulting:

Group 0 (entities that do not require capital)

Santander The giant Spanish bank par excellence has not made any request yet. It is an ex officio buyer and its strategy should be to complete a network of offices that some consider to be its weak point in Spain.

Banesto Part of the Santander group, although it is now independent. Many think it won’t be independent for much longer.

BBVA Spain’s second biggest bank, which so far has absorbed three cajas that had earlier merged in Unnim for a really cheap price. Currently in digestion process.

CaixaBank Formed by La Caixa and six small cajas that it has absorbed over the past two years. It faces a complicated picture, since it has an important network of offices in all Spain, possibly too many, and needs to deal with the serious problem of the Catalan independence movement. It needs to focus abroad in order to grow.

Sabadell A buyer bank–Urquijo, Herrero, Atlantic, Guipuzcoano–who seeks a place in Catalonia, where la Caixa is abusing of a dominant position. At the end of September, it had left behind 60% of CAM’s loan portfolio.

Kutxa Bank It has bought Cajasur and it’s the result of the merger BBK-Kutxa and Vital.

Bankinter Small bank owned by the Botín family that still remains independent. Many consider it a real jewel in the stock market and therefore is interesting for potential buyers.

Unicaja Banco Formed by Unicaja and another two absorbed cajas or that are in the process of absorption (Caja Spain-Caja Duero), it is not very relevant outside Andalusia, where is considered to be the financial institution of the Socialist Party and, therefore, untouchable.

Group 1 (entities that have already been intervened by the FROB)

Bankia Result of the merger of Caja Madrid, Bancaja, Caja de Canarias, Caixa Laietana, Caja Rioja, box Avila and Caja Segovia. Typical case of Too Big To Fail.

NovaGalicia Banco Result of the merger of Caixa Galicia and Caixa Nova, it operates under the brand EVO Bank outside Galicia, Asturias and León. It’s another of the nationalized entities pointed at by Oliver Wyman and Fitch. Politics are key for its survival because Galician regional government still wants a local caja.

Catalunya Banc Formed by Caixa Catalunya, Caixa Manresa and Caixa Tarragona and with some capital needs of €10.825 billion in the worst case scenario, it can be a strong candidate to merge with Kutxa Bank, although some rather place it in the orbit of Sabadell Bank.

Banco de Valencia It is about to be sold to an entity that is willing to manage a problem.

Group 2 (entities with capital deficit and without the possibility of getting it privately and therefore need to ask for state aid)

Banco Mare Nostrum (BMN) Result of the merger of Cajamurcia, Caixa Penedès, Caja Granada and Sa Nostra, it has a difficult future on its own even if it’s trying hard to survive. It may be a tempting target.

Ibercaja Banco The Caja Aragonesa has broken the merger process with Caja3 (Caja Círculo Burgos, Caja Badajoz and CAI) and Liberbank (Cajastur, Caja Extremadura and Caja Cantabria and owner of 75% of the MCC Bank), following the results of Oliver Wyman. All of them have an uncertain future.

Group 3 (institutions with capital deficit, even if they don’t want to ask for public help and want to obtain private one)

Popular After the absorption of the Banco Pastor, everyone wants to buy it. Following Oliver Wyman’s verdict, it will be a hard task to get back on its feet. But it also counts on good companions for the trip. It is important to highlight that in two different reports sponsored by the EC, this bank appears both in a group that would require capitalization in an adverse scenario, and in a second one where it would be just fine. Europe and its contradictions.

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