IFR Editor-at-large Keith Mullin
BANKIA AND MANY of Spain’s banks are stuffed. No surprises there, right? The problems of the banking sector pushed the Germany-Spain 10-year spread to an eye-watering 547bp on Friday morning as the two markets moved resolutely in opposite directions and Spanish 10-year yields hovered around 6.6% – ahead of an auction next week that could prove to be a trigger of doom. Sovereign CDS levels hit a record.
The ECB is urgently calling for the government to clarify how it’s going to fund the Bankia bailout. So where is the €19bn of additional state capital going to come from, ie, the €19bn in excess of the €4.5bn FROB has already thrown in through the conversion of preference shares? The denials from the IMF and the ECB about being approached for assistance were stark but I sense deep nuance and crypto-semantics behind their statements.
Christine Lagarde’s statement was clear. On talk of an IMF financial assistance plan, she said: “There is no such plan. We have not received any request to that effect and we are not doing any work in relation to any financial support.”
I’m not buying it. There will have been pretty intensive negotiations at some level. They may not technically have resulted yet in a formal call for financial assistance – but no approach? No way.
An injection of Bonos in return for stock that would then be deposited with the ECB for cash was discredited as an option. A FROB bond issue is a non-starter, too, given where the Spanish government curve is and investors’ risk aversion. A series of private placements subscribed by Spanish banks wouldn’t get anything close to the size required and would just saddle the system potentially with more toxic waste. Shareholders? Don’t even go there. A piecemeal approach that sees government fund redemptions as they fall due will only prolong the pain.
The government should make sure the ATMs remain full, ensure the payments system remains intact and let Bankia go bust.
SPAIN IS CAUGHT between the proverbial rock and a hard place. There is no room for manoeuvre. There is no money. Beyond the immediate problems of Bankia, how much will it take to cover the country’s financing requirements through to 2014? Estimates go up to €350bn.
Prime Minister Mariano Rajoy, Economy Minister Luis de Guindos, and Bank of Spain governor Miguel Angel Fernandez Ordonez (Mafo) have been dangerously dithering over how to deal with the banks. This only added to the pointless tinkering of the previous government that so willfully presided over the Kamikaze real estate boom in the first place.
Ever since being elected, Mariano “Call me Jamie” Rajoy has gone to great lengths to say that Spain won’t need a bailout and that the banking issue is under control. His initial estimate of capital needs to bail out the whole sector was just €15bn. How ridiculous. It’s a bit like Jamie Dimon’s “tempest in a teapot” quip in its arrogance.
The government should make sure the ATMs remain full, ensure the payments system remains intact and let Bankia go bust
And now the public blame game has started. Mafo, a socialist hangover from the previous administration, has quit over what he sees as a witch-hunt against his handling of the crisis (and the independent audit commissioned by the government). At the same time, however, ever since Rajoy was elected, I’ve been reading that Bankia is very close to the ruling Partido Popular. I’ve never been quite sure about what that actually means. But I don’t like the sound of it; it infers an unholy and grubby alliance.
AND TALKING OF blame, the Bankia mess comes just 10 months after the bank went public, which is a scandal. Frankly, the bank’s IPO was a disgrace. It should never have been allowed to go public. The CNMV and the central bank’s actions (Mafo …?) in allowing it to go forward were shameful.
They should have called a halt to the flotation until the bank had sorted out its monumental mess, which was hardly a secret even a year ago when the process kicked off in earnest. The fact that IPO proceeds had already been baked into the EBA stress test numbers is no excuse.
How much responsibility should the IPO advisers and the underwriters have taken for ensuring they weren’t selling a dud? Advisers are always telling me that their responsibilities include telling clients what not to do as well as how to do it. The banks and advisers should have walked away from the deal as fast as their collective legs would carry them, especially in the case of what was always going to be a retail-driven placement heavily and misleadingly advertised on TV, radio and in the popular press.
Underwriters and advisers should return their fees as a matter of principle. The underwriting group is a who’s who of investment banking: joint global co-ordinators were Bank of America Merrill Lynch, Deutsche Bank, JP Morgan and UBS; joint bookrunners were Barclays, BNP Paribas and Santander, while BBVA, La Caixa, Commerzbank, Mediobanca, Societe Generale and UniCredit were co-lead managers. STJ and Lazard were IPO advisers.
Bankia was always going to be a dog. The global co-ordinators knew something was up when international orders accounted for less than 10% of the institutional tranche and just 4% of total proceeds. And why else would they have cut the price to €3.75 on the final day of bookbuilding from €4.41–€5.05 guidance? The IPO raised €3.09bn against an original upper end of €4.16bn. But not even the 5% fall in early trading could have foreshadowed the total capitulation of recent weeks that was always just a matter of time.
