The New York Times
Mix of Politics and Banking in Spain’s Woes
By RAPHAEL MINDER
Published: June 3, 2010
CÓRDOBA, Spain — “In the name of Jesus Christ, amen.”
The Spanish central bank in Madrid, above, took over the lender CajaSur last month.
With this blessing, the chairman once opened board meetings of CajaSur, a Spanish savings bank controlled by the Roman Catholic Church that was one of the country’s better-known lenders. But last month, CajaSur was taken over by Spain’s central bank, which replaced the banker priests.
“There was no need to say more or go further, since we already spend plenty of our time praying,” joked Fernando Cruz Conde, who was CajaSur’s third-most senior director until it was seized. (He remains vicar general of Córdoba, second to the bishop of this historical Andalusian city.)
Prayer, however, did not protect CajaSur from the consequences of its reckless lending to the real estate companies whose excesses have been at the heart of a Spanish financial crisis that now reverberates across Europe and around the world.
Many of Spain’s savings banks, known as cajas, were originally pawnshops started by Catholic charities. The clergy gradually ceded control of most cajas to regional politicians, who were eager to use them to finance city projects. But the priests of Córdoba fought hard to maintain the banking powers they had held since 1864, even after a merger with a secular competitor created the current CajaSur 15 years ago.
In most ways, though, CajaSur’s woes are much like those endemic in the cajas, which control about half the banking assets in Spain. Local political parties in Córdoba accumulated loans from the bank totaling 87 million euros, or $106 million, over the last five years.
More recently, with CajaSur maintaining its generosity toward borrowers while the construction sector plummeted, “it was probably difficult to tell the bank to stop lending when your own party was relying on its loans,” said Luis Martín Luna, a center-right politician who is also a former CajaSur director.
This intertwining of politics and business is a big reason why Spain’s government has taken so long to consolidate and clean up the cajas. Their troubles also largely escaped notice in the early stages of the financial crisis because prominent commercial banks like Santander and BBVA, which were subject to more stringent regulation, did not need government rescues like many banks in Europe and in the United States.
Now, Spain’s 45 cajas (pronounced KA-has) have been given an ultimatum to complete merger talks within a month, with the goal of halving their number.
But some economists favor a bigger overhaul, including opening up the cajas’ capital to commercial banks and other investors. “The only way to ensure proper governance is for the cajas to change their role and have real owners,” said Javier Díaz-Giménez, an economics professor at the IESE business school.
For its rescue, CajaSur required a capital injection of 550 million euros, ending the church’s control.
After losing 596 million euros last year, CajaSur posted a loss of 114 million euros for the first quarter. Despite the takeover, this financial hemorrhage is likely to continue. This week, the first privately owned airport in Spain, at Ciudad Real in the central part of the country, was declared insolvent by a local judge. CajaSur is one of its largest creditors, holding 18.8 million euros of its outstanding loans.
CajaSur’s banker-priests have long had a sacred-secular relationship with Córdoba’s governing politicians. With 325,000 inhabitants, the city has been run by Communists or their left-wing heirs, Izquierda Unida, almost without interruption since Spain returned to democracy in the late 1970s.
“We’ve been Spain’s only Communist city, a place where everybody, including the church, seems to believe in relying on subsidies,” Mr. Martín Luna said.
In Córdoba and the surrounding region, CajaSur’s footprint stretched far beyond its 3,100 employees and 500 branches, largely because the cajas, instead of paying dividends, distribute about a third of their earnings to social works.
Through such donations, CajaSur supported schools and housing for the elderly and disabled, hospital and university research, as well as museums and cultural events like an annual guitar festival. It was also the main sponsor of the soccer team and a shareholder in the printing works and city newspaper.
And of course, Mr. Martín Luna said, “CajaSur certainly financed church restorations.”
Though it accounts for less than a percent of Spanish banking assets, CajaSur and its rescue echoed across financial markets, given the broader concerns about Spain’s economy and the health of the cajas. Fears about the overall weakness of the cajas led depositors to withdraw a combined 21.6 billion euros in the first four months of the year, according to data published this week by Spain’s central bank. Depositors took out 8.2 billion euros in April alone.
But local residents do not seem particularly panicked about CajaSur’s predicament.
“I’ve got faith in the system — and that’s not because I’m an ardent Catholic,” said Juan Antonio Exposito Pelado, 81, a retired metals factory worker who collects his monthly pension of 550 euros from his CajaSur branch. “I know the bank has problems, but I can’t imagine them letting down a wretched old man.”
Now administrators are combing through CajaSur’s books before advising the next step — most likely an attempt to sell it to a stronger institution.
Politicians in Córdoba said that their findings could also lead to legal action against its deposed chairman, Santiago Gómez Sierra, and other former directors.
CajaSur’s real estate investments, which were concentrated in the Costa del Sol region where many Northern Europeans vacation, may have created conflicts of interest.
A current court case involves allegations of corruption by the management of Arenal Sur 21, a local property developer in which CajaSur had been both creditor and shareholder.
Father Cruz Conde would not comment on the case or detail the bank’s operations. But he offered his own explanation for CajaSur’s cozy relationship with local politicians despite the long conflict between the Roman Catholic Church and Communism.
“It’s been easy to cooperate with Izquierda Unida and other parties,” he said, “because everybody knew that if CajaSur was no longer under the authority of Córdoba’s diocese, decision-making powers risked moving elsewhere, perhaps to Seville or Málaga.”
Indeed, CajaSur was rescued a day after merger talks broke off with Unicaja, a larger Andalusian savings bank based in Málaga.
Most politicians have condemned CajaSur’s rejection of Unicaja after 10 months of negotiations. Still, few in Córdoba blame the priests for mismanagement.
“Competence has nothing to do with being a priest or not,” said Francisco Tejada, one of Izquierda Unida’s City Hall representatives. “Somebody with all the world’s economics degrees can prove a disastrous bank manager.”