The most expensive bailout of all

Catalunya Banc, the failed savings bank just sold to BBVA for €1.18 billion, can now be considered “the worst of the worst” in Spain’s banking crisis, which was caused by dismal bank management during the construction boom.

The foolish decisions made by bank officials — exposure to real estate, toxic assets, lack of rigor in loan approvals — combined with the inability of the last executive team to improve Catalunya Banc’s balance sheets, all add up to a loss of €12 billion for taxpayers. This may well be the most expensive bailout of all, since Bankia will provide a greater return on its own bailout amount.

The total price tag of the banking crisis has reached more than €61 billion in public money, of which €1.7 billion had been recovered to June, according to the Bank of Spain. This is a provisional figure, as the cost of Banco Mare Nostrum, which is 65-percent owned by the state, has yet to be established.

But it is already possible to conclude that citizens have paid for the collapse of the savings banks. So even though it was not directly responsible, the government was wrong to forecast that the banking crisis would come at no cost to taxpayers. Unlike other countries, where the state has recovered the money it advanced — sometimes even at a profit — in Spain public aid has been mostly lost. It would take a lot of optimism to state that the bank restructuring effort has been a success.

Few lessons can be learned from the crisis, except for the disappearance of a third of the banking system

Taxpayers have also noticed that the direct perpetrators of these bankruptcies — at Catalunya Banc and elsewhere — have continued with their lives without any kind of legal investigation into their responsibility in the matter. Few lessons can be learned from the crisis, except for the cataclysmic disappearance of a third of the banking system. The weight of the crisis has been borne fully by Spain’s citizens, without sharing it out at least partially with the main figures in this systemic failure.

The sale of Catalunya Banc raises other questions, some of which concern purely operational issues. For instance, it is very likely that the buyer will begin a drastic adjustment plan, cutting jobs and bank branches to compensate for the cost of the acquisition. The Catalan lender barely yields results that could even be described as average yet, and the quality of its assets is still mediocre. The fact that BBVA is adding new clients does not appear to justify the price it paid paid for Catalunya Banc.

On the other hand, the near disappearance of Spain’s savings banks poses a challenge to the industry watchdog, the Bank of Spain. This oversight body has the obligation to enforce competition rules in the banking sector more strictly. It is not the same managing competition among 40 lenders than among just three or four. The effects on service quality, prices, commission and interest on deposits must be closely monitored.