October 23, 2020

The FROB breaks with the auctions to privatize banks with the award without competition of Bankia to CaixaBank

April 1994. The Bank of Spain opens the bid envelopes at the Banesto auction after having had to be intervened by the State due to the entity’s accounting mismatch. Banco Santander, Banco Bilbao Vizcaya and Argentaria dispute control of the group that had been chaired by Mario Conde. Finally, the bank chaired by Emilio Botín is the winner of the bid: it offered 762 pesetas per share, compared to 667 from the Biscayan bank and 556 from the entity with public capital.

Bankia is no exception: states are still present in large banks in France, Germany or the Netherlands

Bankia is no exception: States are still present in large banks in France, Germany or the Netherlands

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Since then, the auction has been used by the State to get rid of a good part of the entities in which it came to the rescue. This was the case during the financial crisis where the Fund for Orderly Bank Restructuring (FROB) cleaned up and later awarded the savings banks to other better-disposed entities in processes in which there were sometimes several strong players. A competition process was also opened when the new rescue method known as resolution was tested with Banco Popular, which consisted of charging the losses of the process on shareholders, bondholders and creditors and not on the public coffers. SWell, then the only offer that was considered to meet the necessary requirements was Santander.

Now, in 2020, a bank rescued and controlled by the State is once again involved in a privatization operation that will mean its loss of control of the resulting entity: the merger of CaixaBank and Bankia. In this case there has been no public auction, but rather a negotiation between the managers of two listed entities that will result in a share exchange, the distribution of which has centered the negotiations in recent days. This Thursday, an agreement was signed that was endorsed by the boards of directors of both banks.

Consulted by this means, the FROB has chosen not to assess the operation despite the fact that it is the first Bankia shareholder with more than 60% of the shareholding, while the Ministry of Economic Affairs, despite the fact that Vice President Nadia Calviño has participated in Neither has he wanted to explain why the rescued entity with 24,000 million from the public purse -only 3 billion has been returned- to CaixaBank. Why hasn’t an auction been held that would allow the largest shareholder – the State – to choose the best offer and recover part of the bailout? There’s no answer.

Not always the privatization of public entities has followed the auction route. A contemporary of Banesto was Argentaria, a group that emerged after the merger of several state financial groups such as Banco Exterior or El Hipotecario. During the nineties there were successive placements on the stock market of the bank’s capital, until it was finally privatized. The driver of the last phase was Francisco González, already under the Aznar government, who ended up becoming the president of BBVA after his merger with BBV at the turn of the century. Those were years in which both BBV and Santander were building their banking hegemony in Spain based on mergers. The first, with Argentaria; and the second, with the Central Hispano.

A decade later, financial concentration became a constant accelerated by the banking crisis and with a clear state role in the process. Since 2010, a process known as SIP (Institutional Protection System) was put on the table that encouraged the Government to join the banking businesses of savings banks to try to create more viable entities. The best known was the one that gave rise to Bankia, which around Caja Madrid added seven savings banks. Banca Cívica, Liberbank, BMN or Kutxabank were born in the same way. In the commission on the financial crisis that developed in the previous legislature in Congress it was concluded that these instruments were not exactly successful.

On the other hand, the FROB, which had started to clean up numerous savings banks, began with some of them awarding processes to entities that were in a better situation, such as BBVA, Santander or Sabadell, which increased their territorial development by absorbing the old boxes.

Bidding for one euro

In many of these cases, auction processes were carried out for the State to get out of the shareholding of these entities. This is what happened with CajaSur, seized by BBK from Unicaja; with Unnim, which BBVA acquired from Santander or Ibercaja; or when Sabadell took over Banco Gallego from Banesco and Banco Espirito Santo. There were few examples of these auctions by the FROB that ended in awards for a symbolic euro, in exchange for these banks taking over a troubled entity, although contracting insurance on part of the losses covered by the State, the so-called EPA. This was the case of Banco de Valencia, awarded to CaixaBank for one euro; the same symbolic amount that Sabadell paid for CAM or BBVA for Unnim.

The auction was, therefore, a recurrent tool used by the FROB to get rid of the bank shares that it had had to absorb because of the financial rescue. Returned to the competitive process in 2017 for Banco Popular, although with no other valid candidate than Banco Santander.

This tool will not be used by the FROB for the privatization of the last large entity over which it has control. In the case of Bankia, it has not opted for a competitive process. In recent months, Bankia had been identified as one of the entities that was going to star in some of the mergers expected in the sector, under pressure from the ECB to build more profitable entities.

It will also be the only privatization operation in which the FROB – the State – continues, for the moment, as a shareholder. It will not be of control, since it changes 60% of Bankia to become the second shareholder behind the La Caixa Foundation of a larger banking group. It will be from then on when the State can decide whether to divest, selling packages of shares as it has done in the past, until finally exiting the banking business to which it returned after the 2008 crisis.


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