“Investors’ interest in Spain is growing now that firms have cut back”

Madrid will host the third edition of Spain Investor Day (SID) from January 15-16. The event brings together leading Spanish companies and major international investors. Ramiro Mato, who heads up BNP Paris' operations in Spain, is responsible for the invitations to international investors.

Question. How is third edition of SID shaping up?

Answer. We're optimistic. Most of the companies in the blue-chip Ibex 35 will be taking part, with some other smaller firms. On the international investor side, we have 150 groups signed up, although we are expecting the number to increase over the next few weeks.

Q. There is a close correlation between the share prices of companies and the risk premium. Do you think the government should formally ask for a bailout?

A. I don't have all the variables at hand that the government does and, therefore, I can't say. After the announcements by the European Central Bank [on intervening in the secondary market], the risk premium has eased, and the Treasury is managing to fund itself, albeit at a high costs.

Q. But wouldn't it be better to ask for help?

A. In our opinion, if you ask for a bailout, the risk premium would fall. A bailout of Spain would be different from that of Greece, Portugal and Ireland. It would involve asking for a line of credit. So would it be good to ask for one? It depends on the circumstances.

Spain is more demanding with its financial sector than the rest of Europe"

Q. The Spanish Confederation of Savings Banks (CECA) has been a regular participant at SID. To what extent are the savings banks most at fault for the deterioration of investors' confidence in Spain?

A. Obviously, the savings banks have impacted negatively in the image foreign investors have of the Spanish financial system. They made a lot of errors with their investments and in terms of corporate governance. However, it is important to highlight that the majority of commercial banks are healthy as shown by the various stress tests carried out on the sector.

Q. Do investors believe Spain has resolved the problems of its financial sector?

A. There are still some misgivings. Spain has been more demanding with its financial sector than any other European country. The thing is that in 2013, the economy will continue to contract, financial margins will be more stretched and loan defaults will increase. You have to take all of this into consideration.

Q. Spanish people are making enormous sacrifices, but austerity is not leading to the growth that has been promised. What's going wrong?

A. It's true there have been cutbacks and few growth stimulus measures. However, in the medium-to-long term, I believe the austerity policies will have an impact, and I can see the economy taking off.

Q. One of the reforms was about making it cheaper to fire people. Do you think the new legal framework for the labor market is more to the liking of investors?

The new labor law affords companies greater flexibility; investors like it"

A. I believe so. The new law affords companies greater flexibility in making the adjustments that are necessary at the moment. In the future, these changes will facilitate hiring and labor flexibility. Investors view this and other measures in a positive light.

Q. In interviews I have done with you in the past few years, you have always insisted that the Spanish stock market is cheap. However, the Ibex 35 has been falling for a number of years. Do you think there will be a rebound in 2013?

A. Our brokerage Exane BNP Paribas has just published its forecasts for next year. Analysts are going for Europe and they particularly like the British, Italian and Spanish markets. In the case of the Ibex 35, they see upside potential of 15 percent next year. Spanish companies have carried out adjustments and are cheaper than their peers. The trend for Spanish equities could shift in 2013 because companies will see an improvement in their earnings and investors could start to factor in a growth scenario for 2014 and 2015. Our analysts have noted that in the past two months there has been more interest on the part of foreign investors in Spain.

Q. Spain is one of the European countries with the highest executive salaries. Do you think investors might get fed up with this situation given the returns that have been made in the past few years?

A. The remunerations of Spanish boards are not excessive. Perhaps a few companies but not by significant amounts. What may be galling for an investor is a loss-making company that gives bonuses to its management team or share packages to its board. More is increasingly being asked of directors; we have more responsibilities and have to put in more time. So, in general terms, I don't think we can speak of excessive salaries.

Q. But you will agree that having a former president of the leading CEOE employer group, Gerardo Díaz Ferrán, in jail doesn't help to inspire confidence on the part of investors.

A. No it doesn't help. It is an important case given the post he held, but I believe it is an isolated case that won't influence the decisions investors make. In Spain, we have very good businessmen who are doing things well.

Q. You can't generalize, but another significant member of the business community has said he signed off Bankia's accounts without reading them, just to get them out of the way.

A. I think Arturo Fernández was wrong to say that. As a member of a board, you have to fulfill your obligations, which is to go through the accounts carefully. But you can't generalize. Spanish boards are increasingly professional.

Q. Apart from returns, investors want legal security and the least amount of interference in the market possible. Spain along with Greece is one of the few countries that has banned short-selling in the stock market. Do you think this is justified?

A. I don't support that decision. It's a temporary measure and the ban should be lifted in 2013 because it makes the market less fluid.

Q. The government is also thinking of imposing the famous Tobin tax, another measures that is not to the liking of investors.

A. No. The state needs to raise revenues and that is one way of doing it, but this needs to be a measure that is imposed globally. If it is applied only in Spain, it would cause a significant disadvantage for domestic companies and financial institutions.

Q. Are you aware some companies are considering moving their headquarters so as not to be affected by Spain's brand?

A. There have been some talks but no one has gone further than that.