Banks in Spain – how safe are they?
Yesterday, Levante (a Spanish newspaper) had an interesting article about banks in Spain following their recent rating by Moody’s. Moody’s, of course, are an American credit rating agency (like Fitch and Standard and Poor) who analyse the financial position of companies (and governments). They are very influential and their assessment of a business or government can have a real affect upon the body concerned – not least in its ability to raise money.
Moody’s has a standardised scale for the credit worthiness of businesses and institutions and below you can see this applied to banks in Spain.
Credit Worthiness of Banks in Spain according to Moody’s
Aa2 Santander, BBVA, La Caixa
A1 Unicaja, Banco Cooperativa, Bankoa
A2 Bankinter, Popular, Banesto
A3 Banco Sabadell, Caja Vital
Baa1 Caja Madrid, Bancaja, IberCaja
Baa3 Cajamar, BBK, Novacajagalicia
Bonos Basura or Junk
Ba1 Cajastur, CAM, Caja Cantabria, Banco Valencia, Pastor, Catalunya Caixa
As you can see, Moody’s ratings about the credit worthiness of banks in Spain make interesting reading – albeit that there are few real surprises about the position of some of the banks. This is certainly true of the Cajas, which are Spanish savings banks not disimilar to the building societies of the UK years ago.
Normally quite small (la Caixa is a notable exception) the Cajas were notorious for plunging headlong into the Spanish property boom. Needless to say, the present Spanish property crisis has meant that some of the Cajas are now in varying degrees of desperation with CAM, in particular, looking ever more troubled.
In fact, even CAM, despite being rated as ‘junk’ by Moody’s, is unlikely to collapse (in case you were worrying!). The Spanish government’s FROB (Fund for Orderly Bank Restructuring) has injected cash into CAM, so that its capital is now actually up from 4.24% to 10%.
Certainly, the restructuring of the Cajas is important. For years there seemed to be a different Caja on every high street in Spain, some of which were very small indeed, comprising a handful of localised branches.
One of the main weaknesses of the Cajas was that they were often controlled by local politicians and were politically driven with regard to the investments they made. Of course, for years, these investments centred on Spanish property which, no doubt, suited everyone locally!
However, if there was one factor that ran through the Spanish property boom it was the absurd delusion that any type of ill conceived rubbish could be built (often badly), just about anywhere, and then be sold for a ridiculous profit. Over valuations of property, most particularly land, were common and some of the Spanish banks funded developments that would have been condemned as lunatic by an innumerate toddler.
The upshot of all of this was that the very predictable Spanish property crash has left the Spanish banks holding phenomenal quantities of properties including, of course, unfinished developments and costly building land. The latter, of course, in many cases will see no actual development – perhaps for generations. Meanwhile, some of the completed developments are, to all intents and purposes, almost valueless.
That is not say, for one moment, that Spanish property as a whole is valueless. There are segments of the market in Spain that have remained strong and other segments that are secure and worthwhile buys. However, there are some segments, such as the new ‘ghost’ towns where the properties funded by the banks could not be given away.
So, the losses faced by many Spanish banks are huge. This has been known about for years and the only surprise for anyone is that there was any doubt previously that this was the case. Certainly, the claim that all was well with Spanish banks (and particularly the Cajas) has been treated with contempt by most commentators for ages.
What will happen?
Well, the Cajas will be reduced massively and many will become ‘proper’ banks. Mergers are already occuring and Spain, in a few years time, will probably mimic the UK in having a handful of major banks rather than the dozens of savings banks and high street banks of past years. Sadly, this will undoubtedly result in an oligopoly of Spanish banks – providing the ‘man in the street’ with no meaningful banking choices and the bullying, expensive banking ‘service’ of other countries
Still, maybe just maybe, the Spanish banks might in the future find intellectual rigour and efficiency and be able to analyse the internal marketplace of Spain with some element of commonsense…
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