Posted on Wednesday, January 12, 2011
Santiago Carbo-Valverde could be describing South Florida’s housing woes and their impact on the region’s economy and banking, not the damage the industry inflicted on his native Spain.
“The exposure of our banks has been too high. We got carried away,” Carbo-Valverde said. “We observed from 2000 to 2007 a very high growth of loans, mortgages and loans to developers and to land purchases. Domestically, our banks were highly overbranched. We had to reduce supply and capacity.”
Capital could not be raised in the usual way, and unemployment soared to record levels as the construction sector ground to a halt.
Spain has been dubbed by many “the Florida of Europe,” not only for the similarities of climate and geography but because of its economy.
A leading Spanish banking academic and consultant to the Federal Reserve Bank of Chicago who spoke to a Miami audience on Monday, Carbo-Valverde said that, in recent years, those similarities have appealed to the Spanish banks that have expanded their operations into South Florida. And even as Spain’s banking industry endures economic turmoil and a major restructuring of its “caja” savings banks, that nation’s financial institutions continue to reaffirm their commitment to South Florida.
The market is simply too lucrative, too geographically strategic and too similar to its home market to walk away from, he said.
“The Spanish market is mature,” Carbo-Valverde said. “There are very few growth opportunities. They will have to move elsewhere to find new business. But in order to do that, we’re going to need strength because local authorities of the countries you move into want to know how solvent and liquid you are and what kind of risks you incur.”
Spanish banks in recent years have acquired South Florida institutions City National [Caja Madrid], Total Bank [Banco Popular Espanol] and Mellon United [Banco de Sabadell], among others.
In all, nine Spanish banks operate at some level in the region. That growing presence has South Florida banking observers watching developments on the Iberian peninsula with more than a passing interest.
“The influx in recent years of Spanish corporations, some 300 or so, that are doing business in our area are an important driver in the South Florida economy,” said Ana Cruz-Taura, regional community development director at the Federal Reserve Bank of Atlanta’s Miami branch. “This is true in spite of the effects of the global economic crisis, particularly as Miami remains an important gateway to Latin America.”
She noted that Spanish banks’ U.S. assets have historically accounted for about 50 percent of the foreign banking assets of the district.
Carbo-Valverde, head of financial studies of the Spanish Savings Bank Foundation and a professor of economics at the University of Granada, is the latest emissary to assure South
Florida that Spanish banks are here to stay.
Banco Sabadell chairman Jose Oliu Creus delivered similar reassurances last fall during a Miami visit, and Dario Fuentes, the first Spanish national to be named president of the Florida International Bankers Association, has echoed those thoughts.
Carbo-Valverde did not downplay the significance of Spain’s South Florida-style real estate meltdown, which, as here, has left banks holding baskets of bad loans and led last summer to the government-mandated privatization of its publicly run caja savings banks.
Sovereign debt woes
But he also expressed confidence that the mergers of several cajas will strengthen the sector, as will new laws allowing private capital investment in the sector for the first time.
The reforms are in the early stages of implementation, and already critics are complaining about their slow pace. It also remains to be seen whether investors will pump as much money into Spanish cajas as the government and the cajas want, he said.
“Spain and its banks are having difficulties, and we don’t know what 2011 will show,” Carbo-Valverde said. “We still have problems with the sovereign debt in Spain and other European countries, and for sure this will affect Spanish banks. But in the medium and long run, the Spanish banks have many strengths and advantages that now the market is not so willing to recognize.”
The cajas traditionally were publicly run institutions required to invest a sizable portion of their profits into community projects. That role will continue under the privatization model, Carbo-Valverde said.
“They were foundations where politicians were in their governing bodies, and now they are moving to be stock-based companies,” Carbo-Valverde said. “They merge, and they buy a commercial banking license so they can increase their capital through equity issues. Before July, they were unable to tap equity markets because they didn’t have shareholders.”
This will be a critical year for capital raising, he said, noting that the funding markets have been almost closed for the Spanish banks.
“It’s critical for cajas to attract capital so they can expand internationally,” he said.
That includes the Florida market, which is more similar to the Spanish market than other parts of the U.S., he said, and also has an advantage in its geographic and demographic proximity to Latin America.
“They know how to produce retail banking services, especially in more familiar parts of the U.S., like Florida,” Carbo-Valverde said. “Some of the institutions that have a high presence in
Florida now are restructuring, [so] it may take a bit of time for them to decide whether they want to increase their investment.”
He said he is “quite optimistic” about Spain in two or three years. “Many analysts believe Spain will once again be one of the countries with the highest economic growth from 2013 onwards. Even the [International Monetary Fund] feels that way.”
Fuentes, a onetime university student of Carbo-Valverde’s, said that once the Spanish banking system addresses needed changes, it will resume its global expansion at full speed.
“Once we overcome this crisis — and it’s a global crisis — by 2013 we think that Spain will be in very good shape, and we’ll start hearing again of new investment,” said Fuentes, general manager of Caja Mediterraneo’s Miami office.
Wayne Tompkins, DAILY BUSINESS REVIEW