John Ward – Spain Crisis Exclusive : Dash For Banking Consolidation “A Recipe For Worse Disaster” – Insinders La Caixa Singled Out As”Heading For The Rocks”- 15 June 2012

Playing with fire in Spain

Spanish banks have borrowed more money from the ECB than any other country – €227.6 billion. Between them, Spain’s three biggest banks Banco Santander, BBVA, and La Caixa, “have combined assets of about $2.7 trillion. Spain’s three biggest banks are nearly twice as big as the entire Spanish economy. Now it looks like the third of those is in dire straits.

A series of rushed merger deals in recent months has seen La Caixa grow in size but not in stability. This was a major consideration in persuading Moody’s to knock the bank’s credit rating down a whole five notches a month ago. But there are rumours today (Friday) that the institution may well be in much worse shape than either the markets or credit agencies realise.

By assets as declared, La Caixabank is the biggest of Spain’s recently downgraded banks: whereas Bankia weighs in at €318bn, Caixa is worth some €355bn. But under pressure from the Rajoy Government, for much of this year the bank has been taking over many local and national concerns large and small. And according to insiders there, the due diligence has not been all it might have been.

“We are buying some very bad books,” says one source, “purely to make things look better for market analysts and stress tests. But a lot of the time, we are buying danger. And every time the danger is covered up, it becomes more dangerous still.”

Says my usual source in Madrid (not himself a banker, but employed by various US institutions in an advisory capacity), “As I commented last year, the idea that critical mass makes collapses less likely is completely erroneous. Sure, there’ll be fewer of them – but so damn big that, when they happen, everyone panics. And of course, if you just buy anything regardless of quality because there’s a politician kicking your ass, well, it’s like accelerating when you see the rocks. Crazy, just crazy.”

Recently, a La Caixa Bank employee literally headed for the border and went to ground elsewhere after stealing around €1.2m from the bank. He left a wife and two young children behind. Every day, increasing numbers of ordinary Spaniards are withdrawing their funds.

“The bank’s hopeless position is well known by now,” says my insider, “but the Government in Madrid it makes the situation worse with all this pressure. Spain as a whole must now be helped, but everyone thinks there is not enough money to do this. We will see much more stealings and suicides before too long.”

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