SPAIN’S savings banks, or cajas, have survived for nearly 200 years without the help of shareholders. But lots of these institutions, which are largely controlled by regional politicians, are now short of capital and on the hunt for private investors. A delegation from the Confederation of Spanish Savings Banks (CECA) toured European cities this week, touting what it called the “lighthouse of a new Spanish equity opportunity”.
Bad analogy. A lighthouse warns of dangers, and there are plenty of these in the cajas, chiefly political meddling and a high exposure to dud property loans. The state has already pumped ?14.4 billion ($18.7 billion) into the sector, most of it from its Fund for Orderly Bank Restructuring (FROB). Five cajas failed the stress tests, and will require another ?1.8 billion in capital. Another four came close, and may also need to raise funds.
The government wants the cash to come from private sources. One investor has already jumped in. J.C. Flowers, a private-equity group, is the first to take advantage of a new law designed to make it easier for outsiders to invest in cajas. The firm is buying a ?450m convertible bond in Banca Civica, neatly plugging the bank’s stress-test shortfall.
But buying convertible debt—J.C. Flowers is getting a yield of 7.5% on its investment—is different from pumping in pure equity, which is what the cajas really need. Raising that will be hard. Although the sector is consolidating, many cajas have been brought together via “virtual” mergers, which are a halfway house to full integration. Politicians will retain some control in governing bodies, and outsiders will be restricted to 50% ownership (though there is also an option for cajas to turn themselves into foundations, splitting out the banking business.)
Cajas do have strong retail franchises and room to improve profitability: a bloated network of over 24,000 branches could eventually shrink by 20%, according to Bank of America Merrill Lynch. But the domestic market is unlikely to produce much growth for a while, and talk of international expansion looks far-fetched. Bankers say the two biggest cajas—La Caixa, which hasn’t needed state funds, and “Jupiter”, a virtual merger headed by Caja Madrid—would attract the most interest from institutional investors. But for those most in need of quick cash, the cajas’ big advantage lies in the lack of existing shareholders. They can sell shares cheaply.