The Bank of Spain is to force the cajas, Spanish savings banks to reveal the extent of their property losses. The thinking behind this move is the same as the thinking that prompted the stress tests in both the US and Europe; officials believe that these exercises will demonstrate greater transparency and assuage investor concerns about escalating loan loss estimates for loans not yet written down.
According to El Pais, Bank of Spain Governor Miguel Ángel Fernández Ordóñez will then force the weakest three cajas to become banks like BBVA and Banco Santander rather than savings banks (akin to savings and loans or thrifts in the U.S. or building societies in the UK like the former Washington Mutual, Dime Savings Bank, or Halifax). Government believes this will give these companies greater access to capital, especially foreign capital.
The government wants to avoid an Irish outcome in which the banks were bailed out by government, weakening government finances and bringing the country to a bailout and the brink of default (more on this later). It believes the transparency fostered by this process will help raise private capital and avoid this outcome. However, I believe this process will have the opposite outcome if done poorly and accelerate Spanish sovereign concerns.
The El Pais article states:
The key for the Government is to avoid a situation like that of Ireland , where the banking rescue ignited public debt and eventually put the country at the brink of insolvency.To this end, the Bank of Spain and the Executive consider it essential that the cajas get financing in the markets. They want to get private investors to provide capital cushions.That seems very unlikely at this point, at least at normal prices, as doubts about the cajas in the market are formidable. "Consequently, the Bank of Spain has rushed to accelerate reform of the sector, the conversion of the cajas into banks, and recapitalization measures that could partially open the door to investors," Alfonso Garcia Mora, managing partner of AFI, said.
Below is a Bloomberg video clip reviewing the Spanish property market and the reasons so many loan losses are expected.
- Fondos extranjeros acechan a las cajas – El Pais
- Ordóñez quiere que todas las cajas sean fundaciones – La Vanguardia