CAM: chronicle of a death foretold
The story of the collapse of what was once the fourth-largest savings bank in Spain reveals a complex network of political interference, short-sightedness and sheer managerial ineptitude
On Friday, July 22, the Bank of Spain finally lost patience with the board of the Caja de Ahorros del Mediterráneo (CAM), Spain's ninth-largest lender, announcing that it was bringing the more-than-year-long search for a buyer or merger partner to an end and would be sacking the management and temporarily taking over.
Spain's government rescue fund for banks, known as FROB, agreed to inject 2.8 billion eurosinto CAM's banking business by subscribing shares while providing an additional credit line valued at 3 billion eurosto ensure the bank could continue to operate.
The government then announced that CAM would be sold as quickly as possible and at the lowest cost to the taxpayer.
The Alicante-based bank had failed this year's European Union stress tests
CAM's partner pulled out of the merger over its exposure to bad loans
"It was the most ridiculous board meeting I have ever seen"
The Alicante-based caja was one of five Spanish lenders that had failed this year's European Union stress tests earlier that week. The lender's core Tier 1 capital ratio, a measure of financial strength, was three percent in the test's adverse scenario, missing the five-percent minimum required by the European Banking Authority's tests.
The same week, Modesto Crespo, now the former president of CAM, visited the Bank of Spain on July 18 in a desperate bid to persuade the central bank to allow him more time to find a solution. After being told that it was too late - Spain was under continuing pressure from the international money markets and there was a risk of capital flight from the bank - all he could do was return to the Mediterranean port city, where, on the Friday morning, before the Bank of Spain made its announcement, he told his board members that they were out of a job.
That board meeting brought to an end a saga that had begun just over a year earlier, when CAM, along with the country's other troubled savings banks, had been told by the Bank of Spain that it must either merge with other cajas, find a new partner, or receive state funding and lose its independence.
By March this year, it looked as though CAM had found a solution, and would be merging with Cajastur, Caja Cantabria, and Caja de Extremadura to create Banco Base. But at the end of March, the boards of the three cajas voted against CAM joining. The official explanation was that CAM's larger size would make for a difficult fit with the three smaller players, but the real reason was anxiety over CAM's exposure to the troubled property sector.
Banco Base had asked for 2.78 billion eurosfrom the FROB, double the 1.45 billion euros capital shortfall calculated by the Bank of Spain only last week, but once the extent of CAM's bad loans became clear, the other three partners pulled out of the merger rather than be absorbed into a state bank.
Between April and July of this year, Crespo, determined to prevent CAM being taken over by the Bank of Spain, continued to look for private investors.
At the same time there were press reports that the Bank of Spain was planning to auction off CAM for the big Spanish banks, among which Santander, the euro zone's largest bank by market capitalisation, was the favorite, followed closely by BBVA, the country's second-largest bank.
The central bank has also reportedly contacted La Caixa, Banco Sabadell and Banco Popular.
Following the collapse of the Banco Base deal, CAM's board, now increasingly divided over Crespo's failure to put together a deal, told him to ask the Bank of Spain for 2.8 billion eurosto boost its capital to minimum levels.
But the Bank of Spain told Crespo in no uncertain terms that no money would be forthcoming. Furthermore, central bank officials told Crespo that they no longer believed he had the backing of CAM's board
On Monday July 18, Crespo held a board meeting, managing to put off until Thursday the election of new board members. CAM issued a statement saying that the bank no longer required the 2.8-billion-euro bailout from the FROB.
On Thursday, the board reconvened. By now, 12 of the 20 members wanted Crespo out, and knew that he could not put any measures to a vote. He called for a lunch break, telling one of his now-dwindling band of supporters on the board that he was considering resigning, but was told that this would only make matters worse.
During the recess, a Bank of Spain official went to CAM's headquarters to hand Crespo a letter telling him he had 10 days to find a private investor, or the central bank would take over. What's more, Crespo was ordered to read the letter to the board.
Crespo did as he was told, and then left. Those present say there was a feeling that it would not take 10 days before the Bank of Spain would intervene.
They were right. By Thursday, Crespo had reached a decision: he would end the agony, and hand CAM over to the Bank of Spain the following day.
By first thing on Friday, July 22, the Bank of Spain had already agreed with Crespo that the takeover would be carried out by midnight that day at the latest.
Crespo called an emergency meeting of CAM's board. Barely half a dozen members of the board bothered to show up, with others drifting into CAM's offices over the course of the day. "It was the most pathetic and ridiculous board meeting I have ever seen," said one of board members in attendance.
Crespo told the board he was throwing in the towel, and then proceeded to launch into an impassioned defense of Francisco Camps, the Popular Party head of the Valencian regional government, who two days earlier had finally resigned over his involvement in the Gürtel kickbacks-for-contracts scandal. "Camps is an honorable man and I will defend him to the last," Crespo told his astonished colleagues round the board table. Crespo had been appointed as president of CAM at the express wish of Camps.
Later the same afternoon, CAM issued a press statement saying that the caja was to be taken over by the Bank of Spain, ending more than a century of independence. Many of the board members present that day say that they had no say in the decision, but that this reflected their position as "passers-through" as some employees of the bank called them.
"We were just passing through, there to enjoy the privileges and trips that were lavished on us," says one former board member.