Despite five of Spain's savings banks featuring among the seven institutions to fail the EU stress tests, the surprising results can be seen as a positive turning point in the cajas' 200-year history, with reform, consolidation and new access to foreign capital likely to strengthen their vaults. Writer Jules Stewart

On the face of it, Spain's savings banks, or cajas, would seem to have chosen the least auspicious moment in their 200-year history to make a pitch to the international capital markets. Only three days after the EU announced that five of Spain's cajas were among seven banks to fail the EU stress test of 91 banks, the savings banks association (CECA) embarked on a European roadshow to sell their story to potential investors. The five cajas that failed the stress test were found to have a Tier 1 capital ratio of less than 6%, meaning they would face a capital shortfall of €3.5bn in another recessionary scenario.

But CECA's deputy general manager, Jorge Gil, argues that the results were in fact good news for the sector, which accounts for nearly half of the Spanish financial system. "The stress test was in fact good news for us," says Mr Gil. "Of course, we would have preferred to see all the cajas pass the test. But if you put this into context, you see that Spain has not gone through a sample stress test, but instead has tested 95% of the Spanish financial sector.

"Out of the 91 banks stress tested by the EU, more or less one in three was Spanish," adds Mr Gil. "It's important to bear in mind that all of Spain's financial institutions without exception are well above the 4% minimum legal requirement. The conclusion is that having a few cajas marginally under this requirement is not that eventful. Comparing ourselves with other countries, if we had tested the first 75% of the Spanish system, everybody would have passed."

All change

CECA has a good reason to expose the cajas to market scrutiny. The past year has been the most eventful in the history of these regional savings banks, taking them to a point where they are now prepared to issue voting shares and tap the capital markets for capital.

"One of the main issues in the Spanish banking system has been overcapacity," says Carmen Muñoz, an analyst in Spain with Fitch Ratings. "The Bank of Spain wanted to stimulate the cajas' integration process, so it passed the FROB, or restructuring fund, in June of last year. It has taken a long time for the cajas to start moving and this initiative has provided the impetus for the process to begin and most of the consolidation has taken place this year. By the end of the process, the number of cajas will have been reduced from 45 to 19."

Then followed a massive overhaul of the cajas' governing legislation, a shake-up that Spanish prime minister José Luis Rodríguez Zapatero hailed as the "most important in the history of the Spanish banking system". Mr Zapatero promised to make the cajas' governance "more professional and democratic". The reforms will open up the equity of cajas to private investors. Until recently, cajas were restricted to selling non-voting securities known as cuotas participativas, as well as normal shares in listed industrial holding subsidiaries. Under the new law, cajas can offer up to 50% of their equity to private investors. The law also aims to curb political meddling in the cajas by restricting the number of elected public officials allowed on their management and supervisory boards.

Caja reforms

"The reforms allow cajas to raise share capital through a banking subsidiary," says Fitch's Ms Muñoz. "The message is positive in that the cajas are seeking external capital. This will in many ways create an example of how they will look in the future. Previously they could not raise share capital externally and were wholly dependent on internal capital generation. The consolidation process will enable the cajas to achieve efficiency gains needed to cope with the muted operating environment we forecast for Spain over the next few years. Once the economy picks up, the cajas will be in a stronger position to access the capital markets."

The first caja to break new ground was Banca Cívica, one of the five to fail the stress test. This new group, led by Caja Navarra, is going to raise capital through the US private equity investment firm JC Flowers, which has agreed to purchase €450m of convertible bonds from Banca Cívica. The bonds, convertible into shares, will yield 7.5% interest, less than the 7.75% charged for support funds from the FROB.

Mr Gil said that CECA's London presentation yielded "a very positive reaction". About one-third of the investors who attended were from major fund management groups. He said it was "very significant to have 90 people come here one day after the stress test results. The market is starting to assimilate and metabolise that there is a new cajas sector on the move and that there will be excellent opportunities for investment."

The cajas are mapping out their business strategies with a view to taking advantage of the different ways of raising capital allowed under the new legislation. "In the pre-Lehman world there were many investors interested in acquiring cuotas participativas," says Mr Gil. "We don't know if this is still the case, but there are hidden opportunities in the cajas' balance sheets. Spain's commercial banks have been exposed to the markets for many years and it is difficult to anticipate hidden values or appreciation of assets in these institutions.

"By October we should have clear signals from the various boards of directors as to what paths the cajas are going to follow. The past history of Spain has proven that every time a sector has exposed itself to attracting equity investors, it has been a radical success."


All fields are mandatory

The Banker is a service from the Financial Times. The Financial Times Ltd takes your privacy seriously.

Choose how you want us to contact you.

Invites and Offers from The Banker

Receive exclusive personalised event invitations, carefully curated offers and promotions from The Banker

For more information about how we use your data, please refer to our privacy and cookie policies.

Terms and conditions

Top 1000 2023

Request a demonstration to The Banker Database

Join our community

The Banker on Twitter