The reality is that of the €40 billion Spanish banks received as a rescue, only Bankia will give some money back to taxpayers. The rest of entities will keep the profits.
Bankia will definitely give the money back. A bank lives on its good reputation and consumers’ confidence, all these judicial and subordinated debt messes don’t help us and ultimately affect our image. However, we believe the brand is already giving good results.
After what happened, the transparency of Bankia must be unique in the world…
I do not think there are many other entities with the same balance sheets, honestly. Bankia is a very solid bank with a lot of liquidity.
Some speak of new capital needs in Spain of about €10 billion. Can this regulation be more pro cyclical? Does it make sense to insist on recapitalizing more and more when recession continues to deteriorate the quality of assets? And to ask for the credit to be restored at the same time?
That is one of the reasons that started all the Bankia mess. When you force a bank to comply with a number of things and go public, then…
Isn’t it absurd to ask anything to banks now, amid a full recession with never seen levels of capitalization, and huge levels of liquidity, and at the very same time require them to give credit?
I guess it all depends on the confidence’s recovery. Ultimately, the truth is that we can make the strongest bank in the world tumble. It only takes fear to spread. And that is linked to the rational and irrational expectations, it is a very complex, sociological issue. Because whenever people think a bank is having problems… So now we try to give the maximum confidence to our clients. Conditions can certainly be a little harsh, very pro-cyclical, it is true. They are very hard but very healthy measures.
Spain is the only country in Europe that has made a complete revision of its financial system.
And that X-ray will allow us to have a competitive advantage within a short time.
You started as a member of the new board of Bankia over a year ago. What did you find?
It is a very interesting board, with very good and competent people. Both Gorigolzarri and Sevilla, who are the two Executive Directors, are excellent professionals and very competent. We have already closed a first quarter with profits. The second quarter can be even better and we are going to start to show that the bank is profitable. Because it is, clearly, despite the many obstacles and conditions we’ve found in the EU. By the way, some of them seem unnecessary, because Bankia is much healthier than it seemed. For example, concerning the wholesale banking, which was not Bankia’s problem.
What do you mean by healthier than it seemed? What did it seem at the time?
I mean Bankia has very good fundamentals. It went into real estate and housing promotion sector and got trapped. Cajamadrid and Bancaja merger was not the best… It is true that 19 billion euros were needed but it is also a reality that Bankia continues to make more than a billion. It’s not that the factory didn’t work. Once the fair value of the assets is stabilized, that the most toxic assets have been eliminated and transfered to the Sareb, in a very reasonable time one may think that the entity has enough market value to return everything that has been invested in it. That is the mandate we have.
I have analyzed Bankia’s financials and noted a number of disturbing trends. First, loans to consumers and businesses have decreased while the allowance for bad loans has doubled. This poisonous mix indicates that the demand for credit has fallen and the bank is loaning to higher risk clients. That trend does not worry me as much as the way the Bank is sourcing the funds it used to lend. Already it’s main source, deposits from consumers has been decreasing steadily. To fill the void, the bank has borrowed funds and continues to do so. The level of deposits has already falllen below the total amount borrowed!
I realize that they have moved all of their impaired assets off the books to SAREB (a bad loans bank formed for this purpose) in 2012 but the ability for the bank to function as a sound banks remains in question.
I predict at least one more major bail out for Bankia unless it can renegotiate more flexible terms with their labor union to allow for a major strategic overhaul that inspires many instances of innovation and piloting to determine sustainable non-interest income sources of revenue. Otherwise. it’s only a matter of time before a foreign bank or the ECB’s Union Bank takes the reins.
I do applaud Alvaro’s Rengifo’s efforts to paint a rosy future but like the Arab Spring and many other Springs that have occurred in the past year, the public is no longer so easily fooled. Maybe it is time to roll up one’s sleeves and treat the banking problem like a business issue rather than a political hot potato. JMHO