Special: Truths and myths of the Spanish banking sector’s restructuring

When analyzing the restructuring of the Spanish banking sector, we cannot ignore two crucial factors: first, the cost assumed by the public sector (61.495 billion euros so far, if we add the nearly 8 billion paid by the Deposit Guarantee Fund, a remarkable figure although smaller than what the United Kingdom or the Netherlands paid ). Second, malpractices of some former savings banks’ managers.

Also, the huge cleaning effort made by the financial sector cannot be dismissed: around 250 billion euros, 25% of Spain’s GDP, including transferred assets to the bad bank Sareb.

The sector itself has made a sanitation effort, for example by closing nearly 12,500 offices and reducing their staff by 58,000 employees.

Can you imagine the hole that would have meant for the public coffers if that adjustment had been only assumed by the State?

This is precisely a key aspect to keep in mind when assessing bank restructuring. The Bank of Spain has always maintained that closing entities is more costly, whereas restructuring and mergers (despite some failures) have saved lots of money to taxpayers.

In the restructuring and capitalization process not everything has been negative, although the image of the banking sector has been badly damaged for two reasons: the lousy behavior of some former leaders of the old saving banks (cajas) and badly managed incidents such as evictions and the scandal of preference shares and subordinated debt, which were sold as safe savings products.

A positive factor has been the reduction of installed capacity, legislative reforms that allowed the creation of the FROB (“Fund For Orderly Bank Restructuring”) or the improvement of the governance of the saving banks, recapitalizations and the permanent transparency exercise carried out by the sector.

On the negative side, apart from the mentioned bad image issues, are some failed mergers, and very especially those undertaken between entities of a same autonomous community, like Caixa Galicia Bank and Catalunya Banc. In both cases, the political pressures were imposed to the financial logic.

And finally there is Bankia, which eventually became the biggest problem and that has taken 22 billion euros in aid, but that should be a report itself.

Once completed the restructuring and recapitalization process, the Spanish lenders are left with a great issue: back to being profitable by strictly doing banking.



About the Author

The Corner
The Corner has a team of on-the-ground reporters in capital cities ranging from New York to Beijing. Their stories are edited by the teams at the Spanish magazine Consejeros (for members of companies’ boards of directors) and at the stock market news site Consenso Del Mercado (market consensus). They have worked in economics and communication for over 25 years.

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