September 20, 2020

On criticism of the Caixabank-Bankia integration



Among the criticisms of the operation between Caixabank and Bankia They stand out, above all, those of the Catalan independentistas and the extremists of Podemos (and assimilated). The first thing I think is that, if those who are in my antipodes rage, there must be something good. It stings, for some, that an entity of Catalan origin, which they pushed towards Valencia, has its own path. And, to the others, who will not be able to “play” at the public bank. But, to disguise, both resort to other arguments, although in reality they matter little.

Arguments that can be summarized as: less competition, creation of a bank that is too big, too much reduction in employees, goodbye to a public bank and no recovery of the money injected.

The most consistent criticism of them all is the first. Of course, the degree of concentration advances, and it will not even stop here, because there is a certain tendency towards oligopoly. But perhaps the key is in the existence or not of entry barriers. And it is clear that, in the most profitable segments, there are a growing number of participants. We are heading towards a sector with few large entities, but accompanied by several other specialized ones. And the threat of big technology. I think that if there were excessive profits (nothing could be further from the current reality), more players would enter. In any case, I believe that CBK-BKIA will make selective, geographic or business closings and divestitures, voluntary and perhaps required.

It is alleged that an “too big to fail” bank is being created which, in the event of a rescue, could cost the State a lot. To locate ourselves, it should be noted that the new integrated bank will have assets of the order of 40% of those of Santander and also less than BBVA. In any case, economies of scale in banking exist, and more so with digitization. We cannot go against rationality, although we can reduce risks. For this reason, after the last crisis, there are internationally agreed rules that require additional capital buffers and loss-absorbing capacity for large and systemic institutions.

There will be a significant cut in the workforce, although the favorable union opinion on the operation has been surprising to me (which some attribute to preferring good leave conditions than defending employment). It is inevitable, because the financial sector shows excess capacity, office networks are still oversized and, in addition, the capacity to generate income has been reduced. Securing the future requires being competitive and improving efficiency ratios. In addition, the profile of the bank employee is changing. What is inappropriate is that this happens in the midst of the pandemic that has already affected employment so much.

Podemos has a “fixation” on public banking as the only proposal for the complex configuration of an efficient financial system at the service of companies and citizens. It is true that in some countries there are some entities of this type, although they come from the past and are not always properly managed. Germany is mentioned, but that is not a good example of banking efficiency. Here we already had the Savings Banks, invaded by political interests … Do we want a second edition of the fiasco? An entity like the one that Podemos would like, in addition to the ICO, that grants credit with political criteria, is absolutely rejectionable.

The last complaint is that the entire amount that the State injected must be recovered. Or that the new entity guarantees that return. Obviously, illusion is also lived. The State entered the capital of Bankia because its bankruptcy would have been much worse, with a higher cost for the taxpayer and for the Spanish economy, which would have been excluded from the markets. It was a good investment, regardless of what you get back. On the other hand, Bankia, or the new entity, does not have any debt with the State, but rather shares. And you cannot treat one shareholder preferentially over others. Banks are worth little because they earn little, but at least integration generates value for the State. Once consummated, I think it should be divested within a reasonable period of time. Because it does not make sense to maintain that participation for a long time, as if playing the Stock Market, when there are better destinations for public money. And neither the ECB nor the markets like Brussels.

In short, I think the operation is convenient for the stability of the financial system and its advantages outweigh the disadvantages. The new entity will thus be able to be more competitive in the face of a difficult future. Although, yes, you should think about diversifying your activity and not being so focused on the Iberian market.

Carmelo Tajadura is an economist

Carmelo TajaduraCarmelo Tajadura

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