New law may end Spanish banks' gold-rush buying in South Florida
By Zachary S. Fagenson
Spain's move to privatize its savings banks, known as cajas, may signal the end of their steady wave of buyouts of South Florida banks.
The Spanish government this month voted to allow cajas — nonprofits generally tied to regional governments — to let investors buy 50% of ownership.
The banks have been hard hit by Spain's economic woes, which include about 20% unemployment, the eurozone's highest.
Late last year the cajas had about $330 billion on loan to developers, up from $50 billion in 2000, according to BusinessWeek. Today, almost half of their $1.8 trillion assets are mortgages or other realty loans. The Spanish Confederation of Savings Banks estimates 7% of the 45 cajas' loans could sour this year.
In response to the ailing balance sheets, the government opened the once-closed institutions to investors, is requiring at least half of each bank's board to be professionally qualified and is allowing each to separate its social pursuits from banking.
Spanish financial institutions ramped up acquisition of Florida banks even before the recession came to a head in 2008.
Caja Madrid that year bought Miami-based City National Bank of Florida for $1.117 billion. Barcelona-based Banco Sabadell bought TransAtlantic Bank for $175 million in 2006 and Bank of New York Mellon spinoff Mellon United National Bank this year. Banco Popular Español bought Coral Gables-based TotalBank for $300 million in 2007.
Beyond Caja Madrid, Caixa de Aforros de Vigo, Caja de Ahorros de Galicia, Caja de Ahorros de Valencia and Caja de Ahorros del Mediterraneo all have Miami operations, according to the Federal Reserve Board.
And those could be the only ones in Miami for some time.
Several of "the major Spanish banks… and the largest cajas are firmly here," said Bowman Brown, chair of law firm Shutts & Bowen's executive and financial services committees, "and I don't see them going anywhere. I see in some cases their operations possibly growing. But with… respect again to smaller cajas, I can't imagine they'll be growing, and we'll probably lose some."
Spain last year created a bank-rescue fund with 9 billion euros and the ability to take on up to 90 billion euros in debt. That fund will also be able to help capitalize cajas that can't find more equity themselves.
About 45% of Spain's financial system will be touched by the restructuring, said Dario Fuentes, general manager of Caja de Ahorros del Mediterráneo's Miami office and president of the Florida International Bankers Association.
Yet its effect on Miami in the short term remains unclear.
"This is a very complex process that will take a long time," Mr. Fuentes said. "In Spain we are seeing that we have to balance and we are trying to find entities that complement each other" for potential mergers.
His institution, he said, is currently negotiating mergers with three cajas.
And while Ken Thomas, a Miami-based banking analyst and economist, said private capital could flow into Spain from around Europe and Asia, Mr. Brown said investors won't be looking to capitalize newly formed institutions and help them push into new markets, like South Florida, until Spain's economy begins to turn around.
"Given the lay of the land, I don't know how attractive equity offerings will be at this point," Mr. Brown said. "Those that are short on capital and troubled might be encouraged to merge with the stronger cajas."
But "all the cajas are under pressure, and given the state of the Spanish economy likely they won't be utilizing large chunks of capital to expand in other markets," he added.
Regulators July 23 are to release results of stress tests conducted on the cajas as well as commercial banks.
After that, the mergers and buyouts are expected to begin.
"The quicker they act the better," Mr. Thomas said. "Some of the cajas who have strong franchises will be scooped up quickly while others will be pariahs sitting out there and may need government aid to make the deals."
And whatever banks are cobbled together, Mr. Fuentes said, they're sure to look to grow in Latin American and use Miami as the hub for that growth.
"I think that this globalization process will keep on continuing," he said. "In order to fulfill the necessities of your customers you have to think globally. You cannot think only locally."