Lessons to be learned from CAM

The takeover of the regional savings bank Caja de Ahorros del Mediterráneo (CAM) is uncovering financial irregularities that in themselves would justify replacing its leaders and handing management over to the Bank of Spain. A careful analysis of the bank's balance sheets unveils real outrages, such as the awarding of loans to board members at zero interest, risky funding of overambitious projects by the regional government of Valencia (under the Popular Party premiership of Eduardo Zaplana and Francisco Camps) and excessive exposure to real estate risk, probably as a result of financing obligations imposed on the bank according to political criteria.

The account books also show that CAM set itself senseless growth targets, probably imposed with the aim of surpassing Bancaja's results. This kind of growth at any cost would explain the inordinate increase in CAM branches, contrary to the prudent management style adopted by many other banks beginning in 2007, when the first signs of the financial crash became apparent.

The case of the CAM takeover is therefore a perfect example of the pernicious effects of putting bank management in the hands of politicians. When financial oversight bodies insist that savings banks must be run following professional criteria, and ask for a reduction of political representatives on their boards, what they are trying to prevent is precisely the type of plundering that takes place when lenders are forced to finance political projects with no profitability, or real estate developments run by personal friends of regional government officials. The cajas cannot be cash dispensers, permanently ready to finance, at any cost, all of the regional government's brilliant ideas; that is the reason why the merger of savings banks from the same region, with no control by the market or independent managers, must come under immediate review by the Bank of Spain.

In the case of CAM, the investigation of its balance sheets should extend to the relationship between the regional government of Valencia and the savings bank's executives. The first step to avoid impunity for these managers has already been taken by removing them immediately from their posts. But in view of the strange transactions that are seeing the light following the takeover, it seems reasonable to deduce that they are not the only people responsible for the bankruptcy of a lender that will need 4 billion euros just to cover its capital needs. If there are any politicians who are jointly responsible for this mess, they should be held accountable, too. Now that the bank's accounts have seen the light, it is easier to understand the tortuous Camps case [which resulted in the resignation of the Valencian premier to face trial on corruption charges].

CAM provides a case study in mistakes that should be avoided in future through the appropriate legal changes. It is also a political tool to convince regions that insist on maintaining their local cajas to accept a more open, professional business model.