Monday, September 27

Caixabank, a year after starting the merger with Bankia: the State package is still worth one sixth of the bailout

In July it was a decade since a smiling and confident Rodrigo Rato, thumbs up, shook the bell of the Madrid Stock Exchange, starting the listing of Bankia. That operation did not go well, the problems that were tried to silence became more evident and ended with a multimillion-dollar bailout after having had to reformulate some accounts that showed large losses compared to the initially announced profits. They were 22,000 million euros, plus another almost 2,000 million to BMN, absorbed years later by the public bank. Next September 4 marks one year since the beginning of the end of the public bank began, when CaixaBank and Bankia revealed that they were negotiating a merger.

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That operation was defended by the Government, at least by the socialist side, and the FROB, a company through which the State was a Bankia shareholder, as a way to increase the value of public participation in the business. So it has been. The announcement of the negotiations triggered the price of the bank’s securities, although in the following weeks it moderated. At the end of March and the beginning of April, once all the procedures for the operation had been completed, the State went from having 61% of Bankia to being the second shareholder of CaixaBank, with 16%, compared to 30% of Fundación La Caixa.

On September 3, 2020, the day before the negotiation was known, the public participation in Bankia was worth 1,939 million euros on the stock market, compared to the current 3,400 million. In other words, in 12 months, the value of public shares in banking has skyrocketed by around 76%. The gradual recovery that banks are having this year – CaixaBank shares have appreciated 26%, Santander 25%, BBVA 40%, Bankinter 45% and Sabadell 70% – as well as the reception in the market of bank mergers, have helped the State to increase this valuation.

However, the increase is still insufficient to recover a significant part of the aid that the State injected into Bankia in 2012. The account is as follows. Just over 24,000 million euros were allocated to Bankia and BMN. From that total, it is necessary to subtract about 1,100 million that the State received in dividends from Bankia in the years in which it was its majority shareholder. In addition, it has already made two divestments in the banking group in 2014 and 2017, which resulted in about 1,300 and another 800 million. With this, the figure pending recovery is over 20,000 million, counting on the fact that in the spring it already received its first dividend from CaixaBank, which was around 34 million euros.

With these figures on the table, the 3,400 million currently around the valuation of the shares held by the FROB in CaixaBank, still seem a long way off until the more than 20,000 million pending to be recovered from the rescue. The state stake has a value equivalent to slightly less than one sixth of that money that was injected into the bank that took Rato to the Stock Exchange, which was replaced by José Ignacio Goirigolzarri, who has ended up presiding over CaixaBank after the merger.

There is a timetable for selling these shares, but it has already been modified three times. The last one, in spring, when the Government extended two more years, until December 31, 2023. By that date, the FROB should have sold its titles in CaixaBank, although as has happened in the past, it could be delayed again.

The FROB defended the operation from the outset. The current president, Paula Conthe, argued in Congress that the fact that the State ceased to have a controlling position in the shareholding made it easier for it to sell small stakes over time. It is commonly understood in the market that when large packages of shares are sold at once, price reductions may be required. “The operation generates value and improves the prospects for the divestment strategy,” he argued.

“Limited or scant” ransom recovery

However, neither Conthe nor his predecessor, Jaime Ponce, have wanted in their public speeches to make an estimate of how much can be recovered at CaixaBank. Asked in Congress about the merger, Ponce assured that “our ability to recover aid is ‘limited or scarce’, the adjective is put by you [a los diputados]”. Conthe, months later, in the same commission, recognized it:” we can say how much we have spent but it is difficult to say how much we are going to recover. ”

Vice President Nadia Calviño herself also defended the operation in Congress without advancing a forecast of how much it can be recovered for the State. “The conclusion is that this operation stands out as the one that generates the most value of all the possible ones and that, therefore, it improves the possibilities of recovering public aid and thus defending the interest of Spanish taxpayers.”

As a reference of how much can be recovered from the rescue, use the annual document published by the Bank of Spain where the financial rescue aid is shelled and projects their possible recovery. The last one was published at the end of 2019, with data up to the end of 2018. At that time, it was expected to recover 9.56 billion. This figure, two years before the merger with CaixaBank, represents almost three times the current value of the State’s shares and less than half of the pending recovery.

In addition to the sale of shares, the State has in dividends another way to recover part of the money. The aforementioned 34 million last spring were a testimonial issue because the banks had limited the dividend they could give to their shareholders. This limit is lifted at the end of September and CaixaBank has been one of the entities that has committed a higher level of money for its shareholders, assuming 50% of the profit. Of that capital, 16% will go to the state coffers.

Although it was not a divestment – 61% of a medium-sized entity was changed to 16% of a large one – the absorption of Bankia was understood by some as closing the door to having a public bank in Spain, as they pointed out in their moment from United We Can. The PSOE government partner understood that it was “reprivatizing” Bankia and “bad news” for the Spanish economy.

The truth is that Bankia, despite being majority controlled by the State, never functioned as a public service or an economic policy tool. Its board of directors always operated fairly independently. This has changed with the CaixaBank operation. The State, now, does have a seat on the council and made its voice known at the first shareholders meeting that the entity had after the merger, by voting against the salary increase of the dome while the largest ERE of his story.