For sale: one Spanish savings bank, only 500 million euros in debt

Who will want to take the troubled CAM off the Bank of Spain's hands?

Had Bancaja, Valencia's other major savings bank, not managed to merge with Caja Madrid, it too would most likely have ended up in the same situation as CAM. Both are considered illustrations of the worst aspects of the country's troubled cajas, blighted by poor management, blind faith in the real estate sector and political interference.

Two weeks after the Bank of Spain took over CAM, the goal now is to find a buyer as quickly as possible for the caja. The reason is simple: for every day the savings bank is under state control, its assets decline in value. The FROB, set up by the Bank of Spain, now intends to pump some 2.8 billion euros into CAM; it has already bailed it out to the tune of 3 billion eurosto keep it solvent. At the same time as customers are gradually withdrawing their money, other borrowers are taking advantage of the situation to delay repaying loans. The failure of the property market to resuscitate is also dragging the bank down. Real estate makes up 70 percent of its losses and its loans according to the latest European Union stress tests.

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CAM: chronicle of a death foretold

Following an emergency audit by KPMG on July 31 and a valuation by PwC, Crédit Agricole and HSBC, the Bank of Spain is hoping it can arrange an auction for the first half of September. By that time, CAM will be in the red to the tune of 500 million euros, according to market sources. The winning bid will go to the bank that asks for the least money from the state in return for taking over CAM. "The best outcome would be for the buyer to keep the 2.8 billion euros from the FROB and be content with that," says one analyst.

At one time, CAM was the country's fourth-biggest savings bank, with some 70 billion euros in assets. Its size means that there are not many potential suitors out there. Among the few that would be able to manage a network of almost 1,000 offices are BBVA, La Caixa and Banco Santander. Bankia has opted out, saying it already has enough on its plate dealing with the merger of seven cajas, among them Caja Madrid and Bancaja.

CAM's board had set its sights on La Caixa: it is seen as the most stable and well-run of the country's savings banks, and would respect CAM's commitment to charity and social work. But it won't be easy, even for a giant like La Caixa. Buying CAM would mean a capital increase of up to 4 billion euros as well as the money that the Spanish tax payer has so far stumped up. Raising that kind of money at the moment is not easy, and would be especially so for Caixabank, which has just gone public. The BBVA has shown that it could raise the money, judging by the 4 billion euros it raised to buy Turkey's Garanti bank. Santander is not enjoying its most buoyant moment, with difficulties in the United Kingdom and a 21-percent drop in half-yearly profits, but says that it is interested in CAM.

Banco Popular, Sabadell, Ibercaja, Unicaja, BBK and BNP have asked for information about CAM. But it would require a complicated operation between different banks to pull off a purchase. The Bank of Spain says that it would prefer a single, large entity to take over CAM. In the long term, the winner would be the indisputable leader of the Spanish banking sector.

Once the sale is over, more information might emerge as to why CAM's president, Modesto Crespo, was unable to save the bank. "He lacked long-term vision and was not realistic enough to understand that a merger was the only way forward. There was a lot of interest from the other major players, who knew that CAM was in trouble, but Crespo didn't know how to play his cards right," says one insider.

Crespo was told by Francisco Camps, the disgraced former head of the regional government of Valencia, and the man who put Crespo in charge of CAM, to turn down a merger with Caja Madrid and CaixaGalicia, as well as another offer from Caja Murcia and BBK. But his biggest mistake was when he failed to push through the merger led by Cajastur in March. CAM then found itself out in the cold, and unable to benefit from the FROB. The writing was on the wall.

Crespo continued to insist that CAM could find a private investor, which only annoyed the Bank of Spain further, which was all-too-well aware that CAM was sinking fast.

The relationship between Crespo and the governor of the Bank of Spain, Miguel Ángel Fernández Ordóñez, was never particularly good. One encounter sums up their failure to reach agreement. Fernández Ordóñez had called a meeting at the Bank of Spain with Isidro Fainé, the president of CECA, the confederation of Spanish savings banks, along with five heads of the country's leading cajas, among them Crespo. The meeting was to discuss changes to the law regulating the activities of the savings banks. Crespo began talking about the sector's plans for the future. A couple of minutes into his spiel, a visibly irritated Fernández Ordónez interrupted him. "I can't believe what I am hearing," he said, cutting him off. Crespo froze, and a brief but icy silence followed. It was clear, if it hadn't been already, that the Bank of Spain didn't hold the president of CAM in the highest regard.

By now, CAM was a major headache for the Spanish banking system, which remains under pressure from the international markets, and needs to send out a clear message that unlike Greece, Ireland, or Portugal, its banks are in good shape, and will be able to meet any requirements imposed by the European Central Bank.

Has the takeover been a way of sending a message out to the rest of Spain's savings banks? Have its links to the Popular Party been a factor in the decision? Should the Bank of Spain have intervened earlier? Opinion is divided. "The Bank of Spain should not have allowed the deal with Cajastur to fall apart. This is now going to cost the state a lot of money," says one expert.

Ex-CAM president Modesto Crespo (c) and the rest of the savings bank's former board in 2009.
Ex-CAM president Modesto Crespo (c) and the rest of the savings bank's former board in 2009.

The houses of straw

For more than a decade, Spain's property sector grew and grew, deceiving many of the country's savings banks into thinking that there was no end to the boom, that the principle of economic cycles had somehow, like history, ended. Which is why the men and women who ran Caja Castilla-La Mancha, Cajasur and CAM invested in real estate, and kept investing in real estate. Not that they weren't without their political backers: in the case of Caja Castilla-La Mancha, the Socialist Party; and in the case of CAM and Cajasur, the Popular Party and the Catholic Church.

All have now gone to the wall. The main difference between them is their size. Caja Castilla-La Mancha went in March 2009, losing some 24.5 billion euros, three times less than CAM. Then, in May 2010, Cajasur went belly up. It was around four times smaller than CAM.

Their single-minded focus on real estate means that they are now lumbered with huge property portfolios that include thousands of empty apartments. Their board members were all appointed on the basis that they would do as they were told, which prevented any corrective measures being taken, even as Spain's real-estate market went into freefall. The question now is whether the lessons have been learned.

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