CatalunyaCaixa’s announcement to become a bank puts an end to all the savings banks in Catalonia

Barcelona (ACN).- One by one, all the Catalan savings banks are announcing their transformations into regular banks. The first one was La Caixa last Thursday and the last one, which ends the list, was CatalunyaCaixa. In fact, with CatalunyaCaixa’s announcement, all the Catalan savings banks will become regular banks in the coming months. The decision will put an end to a banking model that started in the 19^th century and that had a clear hegemony of the Catalan banking business. The transformation is due to the new banking rules (at International, European and Spanish level), the international market’s pressure, the particular structure of the savings banks and the difficulties that some of them are going through. However, even the healthiest savings banks, such as the giant La Caixa, are undergoing this transformation. Their objective is to ease their capacity to earn capital, and thus strengthen their ‘core capital’ and be less exposed to difficult economic contexts. In addition, the process will allow some not so healthy savings banks to restructure their assets, get more capital and thus improve their current fragile stance.

La Caixa sets the example

The first savings bank in Spain to announce its transformation was the Catalan giant La Caixa, which before last year’s mergers was the third financial institution in Spain, after the world banking giants Santander and BBVA.. La Caixa, which absorbed the small Caixa Girona half a year ago, announced last Thursday that it would pass all its banking business to a newly created bank called CaixaBank [see related news]. Isidre Fainé, La Caixa Chairman, and the rest of the executive board, designed a transformation model that will certainly be copied by many other savings banks across Spain. La Caixa is to pass all its banking business to a new regular bank, created on the bases of La Caixa’s holding ‘Criteria’, which manages its stocks in several companies, including some multinationals. Then La Caixa would create a business holding which would control all its shares in more industrial companies, as well as its real state business. The reason to separate the real state business from the new bank is that this sector is the most sensitive to the current difficult economic context in Spain, after the construction bubble’s collapse. Finally, La Caixa would pass all its social work to a foundation, which would receive regular contributions from the bank and thus carry on its social mission. All these 3 pillars would be controlled by La Caixa itself, which would continue as a “virtual” savings bank so to say.

The rest follow

On Friday, the board of Unnim’s, which is a new savings bank created by the merger of Caixa Terrassa, Caixa Sabadell and Caixa Manlleu, declared they were starting the process to transform the savings bank into a regular bank. They stressed that they would keep up the social work “without substantial variations”. In the following weeks, the board will draft and approve the transformation process, which would be then submitted to the General Assembly for approval.

On Monday, the nowadays first Spanish savings bank that came about from the merger of Caja Madrid with 6 others including the Catalan Caixa Laietana presented the results of its newly created bank. Known as ‘Banco Financiero y de Ahorro’, it will go into the stock exchange market this year. Caja Madrid merged with Bancaixa, Caixa Laietana, Caja Ávila, Caja Canarias, Caja Segovia and Caja Rioja before summertime; however it was a “cold merger”, as each entity was keeping its brand and social work. They all formed a new financial institution called the ‘Banco Financiero y de Ahorro’, which grouped all the business. It had 440 million euros of profit in 2010. Now, its Chairman Rodrigo Rato, announced it will be transformed into a regular bank and will go on the stock market.

Also on Monday, Caixa Penedès and the 3 other savings banks that merged to form the Mare Nostrum group announced they were passing all their banking business to the new ‘Banco Mare Nostrum’. It was also a “cold merger’, and the savings banks kept operating under different brands and their differentiated profile. Now, the boards of the 4 savings banks decided to pass all their banking business to the ‘Banco Mare Nostrum’. All four will keep their differentiated boards, legal personality and their social work.

Finally, yesterday evening, the last Catalan savings banks, CatalunyaCaixa, which is the second largest one in Catalonia, also announced its transformation. CatalunyaCaixa is the result of the merging of Caixa Catalunya, Caixa Tarragona and Caixa Manresa last summer. A week ago, CatalunyaCaixa sold its shares of the oil company Repsol to get more capital; however, it was not enough to reach the required 8% And it was planning to apply for the special fund created by the Spanish Government and the Spanish Central Bank. Yesterday, Antoni Peña, CatalunyaCaixa’s Director confirmed that the financial entity is preparing its transformation into a regular bank.

Why this transformation?

The previous international rules, known as “Basel II”, were foreseeing a ‘core capital’ level of minimum 2%. Now, the new “Basel III” foresees a ‘core capital’ level of minimum 7%, to be gradually reached by 2019. Last summer, the Spanish Government approved the new savings banks law, under enormous pressure from the international financial markets and other Western Governments, in particular Germany, France and the US. To calm down the markets and earn greater levels of trust, the new law was drastic in its approach: Spanish banks needed a minimum of 8% of ‘core capital’. In addition, it foresaw that savings banks needed even more; 10% in some cases, as not all the savings banks were equally healthy or equally sick, depending on the perspective. In fact, stress tests released last summer showed that some Spanish savings banks were in a very strong position, such as La Caixa; however, they also showed than many others were in a quite vulnerable situation, especially the smaller ones. Furthermore, coming back to the savings bank new law, all the Spanish financial institutions needed to reach the 8% and 10% requirements by September 2011, and not 2019 as “Basel III” foresees at international level. Therefore, savings banks were condemned to capitalise themselves urgently, in less than one year. However, their structure was a clear obstacle for that. Thus, the law was giving them three solutions if they could not find enough ‘core capital’. Among the solutions there was a clear one: if they could not meet the requirements, they must be transformed into regular banks. After months of internal and media debates, and after digesting the merging operations which completely changed the savings banks landscape before summertime, now they are ready for the next step: becoming a bank. They all insist their social work will be kept, but there are some doubts about it, especially in the future years and in some particular cases. Besides, the transformation can mean the disconnection of these financial institutions with concrete territories, and the push for its concentration. This change will also change the strength of local economic and political powers across Spain.

An old and particular model ends

The savings banks were a particularity of the Catalan, and also the Spanish banking system. They started being created at the end of the 19^th century and early 20th as mutuality financial institutions to give access to pensions, savings and credit mechanisms to the working classes. They were created by local powers, like provincial council and city councils as a way to foster and extend social welfare and control social tensions. This is why savings banks were created with one particular mission: to perform social work. Therefore, these financial institutions were obliged to carry out local social work, like creating cultural centres or providing services to elders; a social work that has been maintained until nowadays. Savings bank play thus a significant role ensuring social welfare. With the Autonomous Communities model, in the early 80s, many new savings banks were created by local powers throughout Spain. Therefore, the savings bank model was intrinsically linked to local powers and the aforementioned social work.

However, in the current difficult financial context two main problems arose: their “local specialisation” and general small size was making them particularly vulnerable to the local economic crisis. In Spain, in particular, savings banks were particularly affected by the construction bubble and its crash, as they gave many mortgage loans and consequently they have a considerable stock of housing facilities. The second structural problem of the savings banks is its lack of shareholder owners due to its mutuality conception (the contrary than a regular bank). Therefore, now that the new banking rules ask for greater levels of ‘core capital’, a savings bank has by definition greater problems than a regular bank to increase its capital, as it cannot call the owners to expand the capital.