Spain’s bank rescue – a blank cheque?

Vincente Clavero

The party held by the banks during the years of the housing boom is costing us Spanish blood, sweat and tears. And worst of all, we still do not know the final invoice that we will have to pay. So far, it is running at 850 euros per head, counting only the money that you will never recover and that the European Commission has been estimated at about 40 billion euros. But the rescue of the financial sector has seen the state make available five times the amount – 220 billion euros – which, at least in part, is at risk of being lost.

A not insignificant portion of the cost of the restructuring has been dedicated to pay buyers of financial institutions to protect them from potential hidden losses. The mechanism created for it is called the Asset Protection Scheme (APS) which has required, so far, 28 billion euros. But keep in mind that in the hands of the the state-backed Fund For Orderly Bank Restructuring (FROB) are still larger financial institutions (Bankia, Catalunya Bank, NovaCaixaGalicia) whose future owners will also want firm guarantees that they will not be forced to be soley liable for unexpected losses.

The APS is turning out to be a real bargain for buyers, who are enjoying the opportunity to grow by absorbing the entities that have born the brunt of the crisis – the vast majority-former savings banks, or cajas –  with virtually all costs paid. Through this advantageous procedure, Sabadell has absorbed CAM, BBVA has bought Unim, CaixaBank has taken over Bank of Valencia, Liberbank has Caja Castilla La Mancha, and Kutxabank now has Cajasur. If the operation goes well, they can crack open the Cava, and, if not, taxpayers will be forced to reach into their pockets again.

Another threat is that Sareb – the state-run bad bank – will not be able to recover the 48 billion euros that it invested in banks’ toxic assets. It has got fifteen years to do it, but the future of the housing market is so uncertain that no one is able to sure, to this day, that the State will get a good return. A proof of the doubts that Sareb provokes has been the cost to recruit partners willing to risk their money and stubborn refusal of BBVA to buy a stake, despite strong pressure from the Government.

And then there’s the concerns whether the financial sector can deal with all the debt it has issued, with the backing of the Treasury. The outstanding balance is currently around 65 billion euros. It is unlikely that this amount is lost, barring a catastrophe even greater than what they now suffer. But with an economy like Spain’s, where every day there are fewer people with jobs and those working earn less each time, anything can happen and, therefore, there is a risk that some banks may not be able to fulfil their obligations.

Therefore, the 40 billion euros of public money already burned to save the financial system is only part of what this cursed joke may cost us in the end, if things get out of hand. And in the meantime, banks are not allowed to give credit and – what is more irritating, if that is possible – they continue displaying their usual arrogance with us, we who have prevented a number of them to going to hell.

 El Publico  12.7.2013

Translated by Revolting Europe