What the 'cajas' cost the taxpayer

Spanish taxpayers will be hit hard by the cost of restructuring the country's savings banks. As well as paying for bailouts and loans to ensure the financial continuity of the cash-strapped entities, they will also have to stump up for unemployment payments and compensation to bank employees who will be laid off or retired early. Labor Ministry calculations, which EL PAÍS has had access to, reveal that around 700 million euroswill have to be paid out between 2010 and 2014 in unemployment benefit.

The urgent reform of the Spanish financial system - one of the major demands put on Prime Minister José Luis Rodríguez Zapatero by the markets and Brussels - consists, in reality, of slimming down the savings banks. Above all else, that means reducing their network of branches and their staffing levels.

In addition, Spanish financial institutions will now be obliged to have a minimum core capital ratio of eight percent of risk-weighted assets. Rising borrowing costs have largely closed the international wholesale finance markets to Spain's weakest cajas.

Forty-five savings banks have so far been slimmed down, through mergers and sell-offs, into 18 financial groups. That said, the majority of the cajas still retain the boards, headquarters and networks of offices that they had two years ago.

Restructuring the savings banks is crucial to Spain's efforts to emerge from nearly two years of recession.

The Bank of Spain estimates that the sector needs 15 billioneurosin recapitalization funds, though some analysts predict it will need up to eight times this amount.

Two years ago, the banks had a total of 25,000 branches, and employed 135,000 people. So far, some 2,400 offices have been closed, with 9,000 employees laid off, according to figures from the Bank of Spain.

And the phenomenon is only just beginning. "The number of employees who will see their contracts come to an end will number around 13,000," reads a document prepared by the Labor Ministry, entitled "Note about the impact on the unemployment system of the restructuring process of the savings banks." This calculation is based on 12 job-reduction processes already filed with the government. All of them have been approved, apart from one, thanks to prior agreements reached between workers' committees and the companies involved.

The majority of men and women being laid off are in their fifties, and have paid substantial amounts into the social security system during their careers. This means that when they are made redundant, as well as receiving a lump sum in compensation, they will receive the maximum amount of unemployment benefit for a period of two years. The Labor Ministry estimates that the cost to the taxpayer of early retirement for each caja employee is around53,000 euros.

The conclusion of the documents from the Labor Ministry is blunt: "This restructuring process of the cajas, given its speed and volume, will have a serious impact on the unemployment protection system." This will put further pressure on the public purse, which has been running a deficit for the last three years.

But sources within the cajas say that this figure is much lower than the real cost, which will most likely vary between 250,000 eurosand 300,000 eurosper employee who is laid off. The banks will use much of the 10 billion euros government rescue fund to cover the outlay.

What's more, the same sources say that the figure of 13,000 layoffs is low, and that the final figure will be closer to 25,000. The fact that there are more lay-offs in the offing, in a country where there are already five million out of work, is already public knowledge. For example, Caja España de Inversiones (the result of a merger between Caja España and Caja Duero) is having to negotiate a merger with Unicaja to avoid having to resort to public funds. At the same time, according to business publication Cinco Días, the Bank of Spain is considering demanding that further wage cuts be made by the banks planning on requesting help.

The impact of the early retirement program among the cajas lies behind the Labor Ministry's recent decision to toughen the rules by which large companies that are not facing financial difficulties are able to reduce their workforce by offering packages that include generous unemployment benefits.

It made this announcement last month after telecoms giant Telefónica said that it was to lay off 20 percent of its Spain-based workforce, despite the fact that it has just registered record profits.