Cajas tease the wrong type of investor

Ivan Comerma, head of Treasury and Capital Markets at Andorran banking group BIBM, today told me he believes that the likelihood of cajas drawing in private equity is “almost nil.” Instead, Comerma suggests that “those who’d buy will not begin doing so until they profit from knockdown prices, which could actually amount to a disguised liquidation. As for the European banks, the German, French or British would only enter into an agreement if they can swap debt for equity and increase control over their investment. Now, I don’t rule it out either, some of the most creditworthy Spanish banks could grab offices to prevent a seizure of the financial system.”

It is hardly arguable that retail investors and capital houses have so far given cajas the cold shoulder, which makes sense when you listen to risk rating agencies like Fitch or Moody’s calculate holes in the savings banks for up to €43 billion or even €89 billion.

Somehow, almost no one feels worried about the Bank Restructuring Fund or FROB. It will be offering more debt to the markets this year ─the fund, from which Spanish financial institutions with the worst liquidity reserves are meant to receive Tier 1 oxygen, is currently wrapped in a mere €14 billion duvet from the state budget, credit markets and a banking credit line,─ but even Deutsche Bank AG in London says that the Spanish government could inject, let’s say, €75 billion into the regional savings banks if it were urgent, and that would not damage Spain’s public finances any further.

Besides, Jeremy Carter, structured finance analyst at Fitch, manages a particularly significant set of data to understand the trouble with cajas. According to Carter, “the majority of transactions in collateralised loan obligations or CLOs that involve small and medium size companies ─and SMEs are traditional clients of our savings banks─ bear less than 30 per cent of risk exposure to the property market. While it is true that defaults in this sector are close to 10 per cent, the recovery rate is much higher than with unsecured loans.”

In addition, these defaults are down 1 per cent from 2009 and deterioration of value of cajas’ assets and properties has stabilised.

The change is subtle, inaudible if you prefer so, but the trend does not prescribe a sudden death as the best way out for the cajas. Then, there is this paper that Bank of America (BoA) Merrill Lynch presented to its clients back in April 2010 after weeks of exploration throughout the Spanish financial system on the lookout for opportunities. The report highlights the beautiful mind and nature of the credit model of the cajas, the very reason why they have successfully ousted orthodox banks from almost half of Spain’s credit market: since 1995, savings banks have invested at least €16 billion in social projects and public education and health. Isn’t it exactly the kind of financial behaviour that would lure European ethical investors?

Only in the United Kingdom, socially responsible investment or SRI has seen extraordinary growth. Of course, the sums revolve around the few billions, but cajas ─once put themselves together─ have all the features to place a hand on either side of the border between pure capitalist investment and one with a healthy ethical edge, the absence of which, precisely these days, is universally regretted.