Is it necessary to restructure the savings banks? Why or why not? The ESADE Alumni Finance Club recently hosted a session featuring two renowned specialists in this sector, who debated one of the hottest current economic topics.

"Houston, we have a problem". With this declaration, Pedro Navarro, Executive Vice President of the ESADE Foundation Board of Trustees, opened a session that was to focus on one of the most sensitive topics in the Spanish economy today. Mr. Navarro explained that the guest speakers would be debating the opportunities and threats involved in restructuring Spain’s financial system, and in particular its savings banks. He warned that, for some international media outlets, the topic had become an "excuse" to "speak poorly of Spain", something which "is not helping the international image of our country".

Javier Judel, Vice President of the ESADE Alumni Finance Club, then took the floor to cite the huge number of news pieces – some of which contradict others – that have recently appeared in the Spanish media, as evidence that "few topics are now more relevant or more complex than this one". Mr. Judel then introduced the two guest speakers: Alfonso García Mora, General Manager of Analistas Financieros Internacionales (AFI), who is also one of the world’s most renowned experts in savings banks, and Ignacio Sánchez-Asiaín, General Manager of BBK, a savings bank that has one of the sector’s best financial ratios.

Restructuring: yes, but why?

Following a meticulous analysis of the state of the sector in Spain, Mr. García Mora declared: "I believe the Spanish financial system needs to be restructured, obviously, but this is not a restructuring based on the pressing need for capital – the system will hold up. Rather, it needs to be done because we are moving toward a completely different context". He added: "We are seeing a paradigm shift in the banking sector both inside and outside of Spain. It’s not just a microcosm of the savings banks, nor is it the cosmos of the Spanish financial system, nor is it the macrocosm of Europe – it’s the whole world".

Mr. García Mora drew a distinction between "restructuring based on the pressing need for capital or liquidity, on the one hand, and restructuring for reasons of strategic efficiency in the medium and long term, on the other. These are two different goals, and we can mix them, but that would generate distrust". He added: "When we make the decision to integrate, it sounds like something is going wrong. But maybe what we’re doing is preparing ourselves for a different situation".

Throughout his talk, Mr. García Mora emphasised international regulation, which forces countries to make modifications to their financial systems. "Regulation will tend toward higher-level modifications in international banking, with greater capital requirements", he explained. "This regulatory framework merely places greater pressure on the need to restructure in order to meet these capital requirements and maintain an ROE that, although we don’t know how large it will be, must be high enough so that the sector can remain private in the broadest sense of the term".

Mr. García Mora reached these conclusions after analysing specific data on the situation of the savings banks: decreasing credit investments and deposits, increasing delinquency rates, increasing unemployment, an excessive number of offices, and so on. These indicators point to a situation that he described as "delicate".

"The savings banks need to deleverage"

The second speaker, Mr. Sánchez-Asiaín, began by looking at the current situation of the savings banks, asking "What’s been done since then?" He explained: "The savings banks either haven’t done their homework or have started too late". With this exercise in self-criticism, he highlighted the damage done to the financial system by a crisis that "has cast doubt on the business model of the savings banks".

Mr. Sánchez-Asiaín continued: "The year 2010 is going to be very difficult, because the margin of interest rates is going to decrease sharply – by 22%, we estimate. We will once again enter a new paradigm of margins, against which we will have to struggle to survive. Losses derived from risk will increase in 2010 and 2011. The situation is very difficult, but we don’t need to over-dramatise it. I believe that the Spanish financial system has prepared for this moment by making anti-cyclical provisions over many years. We have good managers and some very powerful institutions". According to Mr. Sánchez-Asiaín, it will be necessary to distinguish between troubled and strong institutions in order to avoid generalising about the health of the system.

"I also believe that the financial system, especially the savings banks, needs to deleverage, and the sooner they start, the better", said Mr. Sánchez-Asiaín, explaining that "we’ve already lost a few key months". He added: "Deleveraging is not just a merger, and a merger is not deleveraging. Deleveraging means that you stop giving loans, unfortunately, that you increase your capital and reserves, that you reduce unprofitable distribution in the short term, and that you try to diversify the sources of your deposits, and we have been insufficient on all of these fronts since the beginning of the year".

Mr. Sánchez-Asiaín wrapped up his talk by offering some reflections on the Spanish and international financial systems. He began by noting the "savings banks’ history of success". In more than 100 years of history, he said, the savings banks – "unlike the other banks"– have never required aid. He suggested that the actions of other countries’ governments could lead to a repeat of the financial crisis. He warned of the dangers of certain calculation models and insisted that they be avoided. According to Mr. Sánchez-Asiaín, the failure to restructure and the lack of credit will not have effects in the short term, but rather in 2012 and 2013. "That’s when we will start to see the effects if we don’t restructure the financial system", he concluded.




 

For further information:
ignacio.ramon@esade.edu

Is it necessary to restructure the savings banks? Why or why not? The ESADE Alumni Finance Club recently hosted a session featuring two renowned specialists in this sector, who debated one of the hottest current economic topics.

"Houston, we have a problem". With this declaration, Pedro Navarro, Executive Vice President of the ESADE Foundation Board of Trustees, opened a session that was to focus on one of the most sensitive topics in the Spanish economy today. Mr. Navarro explained that the guest speakers would be debating the opportunities and threats involved in restructuring Spain’s financial system, and in particular its savings banks. He warned that, for some international media outlets, the topic had become an "excuse" to "speak poorly of Spain", something which "is not helping the international image of our country".

Javier Judel, Vice President of the ESADE Alumni Finance Club, then took the floor to cite the huge number of news pieces – some of which contradict others – that have recently appeared in the Spanish media, as evidence that "few topics are now more relevant or more complex than this one". Mr. Judel then introduced the two guest speakers: Alfonso García Mora, General Manager of Analistas Financieros Internacionales (AFI), who is also one of the world’s most renowned experts in savings banks, and Ignacio Sánchez-Asiaín, General Manager of BBK, a savings bank that has one of the sector’s best financial ratios.

Restructuring: yes, but why?

Following a meticulous analysis of the state of the sector in Spain, Mr. García Mora declared: "I believe the Spanish financial system needs to be restructured, obviously, but this is not a restructuring based on the pressing need for capital – the system will hold up. Rather, it needs to be done because we are moving toward a completely different context". He added: "We are seeing a paradigm shift in the banking sector both inside and outside of Spain. It’s not just a microcosm of the savings banks, nor is it the cosmos of the Spanish financial system, nor is it the macrocosm of Europe – it’s the whole world".

Mr. García Mora drew a distinction between "restructuring based on the pressing need for capital or liquidity, on the one hand, and restructuring for reasons of strategic efficiency in the medium and long term, on the other. These are two different goals, and we can mix them, but that would generate distrust". He added: "When we make the decision to integrate, it sounds like something is going wrong. But maybe what we’re doing is preparing ourselves for a different situation".

Throughout his talk, Mr. García Mora emphasised international regulation, which forces countries to make modifications to their financial systems. "Regulation will tend toward higher-level modifications in international banking, with greater capital requirements", he explained. "This regulatory framework merely places greater pressure on the need to restructure in order to meet these capital requirements and maintain an ROE that, although we don’t know how large it will be, must be high enough so that the sector can remain private in the broadest sense of the term".

Mr. García Mora reached these conclusions after analysing specific data on the situation of the savings banks: decreasing credit investments and deposits, increasing delinquency rates, increasing unemployment, an excessive number of offices, and so on. These indicators point to a situation that he described as "delicate".

"The savings banks need to deleverage"

The second speaker, Mr. Sánchez-Asiaín, began by looking at the current situation of the savings banks, asking "What’s been done since then?" He explained: "The savings banks either haven’t done their homework or have started too late". With this exercise in self-criticism, he highlighted the damage done to the financial system by a crisis that "has cast doubt on the business model of the savings banks".

Mr. Sánchez-Asiaín continued: "The year 2010 is going to be very difficult, because the margin of interest rates is going to decrease sharply – by 22%, we estimate. We will once again enter a new paradigm of margins, against which we will have to struggle to survive. Losses derived from risk will increase in 2010 and 2011. The situation is very difficult, but we don’t need to over-dramatise it. I believe that the Spanish financial system has prepared for this moment by making anti-cyclical provisions over many years. We have good managers and some very powerful institutions". According to Mr. Sánchez-Asiaín, it will be necessary to distinguish between troubled and strong institutions in order to avoid generalising about the health of the system.

"I also believe that the financial system, especially the savings banks, needs to deleverage, and the sooner they start, the better", said Mr. Sánchez-Asiaín, explaining that "we’ve already lost a few key months". He added: "Deleveraging is not just a merger, and a merger is not deleveraging. Deleveraging means that you stop giving loans, unfortunately, that you increase your capital and reserves, that you reduce unprofitable distribution in the short term, and that you try to diversify the sources of your deposits, and we have been insufficient on all of these fronts since the beginning of the year".

Mr. Sánchez-Asiaín wrapped up his talk by offering some reflections on the Spanish and international financial systems. He began by noting the "savings banks’ history of success". In more than 100 years of history, he said, the savings banks – "unlike the other banks"– have never required aid. He suggested that the actions of other countries’ governments could lead to a repeat of the financial crisis. He warned of the dangers of certain calculation models and insisted that they be avoided. According to Mr. Sánchez-Asiaín, the failure to restructure and the lack of credit will not have effects in the short term, but rather in 2012 and 2013. "That’s when we will start to see the effects if we don’t restructure the financial system", he concluded.




 

For further information:
ignacio.ramon@esade.edu

Is it necessary to restructure the savings banks? Why or why not? The ESADE Alumni Finance Club recently hosted a session featuring two renowned specialists in this sector, who debated one of the hottest current economic topics.

"Houston, we have a problem". With this declaration, Pedro Navarro, Executive Vice President of the ESADE Foundation Board of Trustees, opened a session that was to focus on one of the most sensitive topics in the Spanish economy today. Mr. Navarro explained that the guest speakers would be debating the opportunities and threats involved in restructuring Spain’s financial system, and in particular its savings banks. He warned that, for some international media outlets, the topic had become an "excuse" to "speak poorly of Spain", something which "is not helping the international image of our country".

Javier Judel, Vice President of the ESADE Alumni Finance Club, then took the floor to cite the huge number of news pieces – some of which contradict others – that have recently appeared in the Spanish media, as evidence that "few topics are now more relevant or more complex than this one". Mr. Judel then introduced the two guest speakers: Alfonso García Mora, General Manager of Analistas Financieros Internacionales (AFI), who is also one of the world’s most renowned experts in savings banks, and Ignacio Sánchez-Asiaín, General Manager of BBK, a savings bank that has one of the sector’s best financial ratios.

Restructuring: yes, but why?

Following a meticulous analysis of the state of the sector in Spain, Mr. García Mora declared: "I believe the Spanish financial system needs to be restructured, obviously, but this is not a restructuring based on the pressing need for capital – the system will hold up. Rather, it needs to be done because we are moving toward a completely different context". He added: "We are seeing a paradigm shift in the banking sector both inside and outside of Spain. It’s not just a microcosm of the savings banks, nor is it the cosmos of the Spanish financial system, nor is it the macrocosm of Europe – it’s the whole world".

Mr. García Mora drew a distinction between "restructuring based on the pressing need for capital or liquidity, on the one hand, and restructuring for reasons of strategic efficiency in the medium and long term, on the other. These are two different goals, and we can mix them, but that would generate distrust". He added: "When we make the decision to integrate, it sounds like something is going wrong. But maybe what we’re doing is preparing ourselves for a different situation".

Throughout his talk, Mr. García Mora emphasised international regulation, which forces countries to make modifications to their financial systems. "Regulation will tend toward higher-level modifications in international banking, with greater capital requirements", he explained. "This regulatory framework merely places greater pressure on the need to restructure in order to meet these capital requirements and maintain an ROE that, although we don’t know how large it will be, must be high enough so that the sector can remain private in the broadest sense of the term".

Mr. García Mora reached these conclusions after analysing specific data on the situation of the savings banks: decreasing credit investments and deposits, increasing delinquency rates, increasing unemployment, an excessive number of offices, and so on. These indicators point to a situation that he described as "delicate".

"The savings banks need to deleverage"

The second speaker, Mr. Sánchez-Asiaín, began by looking at the current situation of the savings banks, asking "What’s been done since then?" He explained: "The savings banks either haven’t done their homework or have started too late". With this exercise in self-criticism, he highlighted the damage done to the financial system by a crisis that "has cast doubt on the business model of the savings banks".

Mr. Sánchez-Asiaín continued: "The year 2010 is going to be very difficult, because the margin of interest rates is going to decrease sharply – by 22%, we estimate. We will once again enter a new paradigm of margins, against which we will have to struggle to survive. Losses derived from risk will increase in 2010 and 2011. The situation is very difficult, but we don’t need to over-dramatise it. I believe that the Spanish financial system has prepared for this moment by making anti-cyclical provisions over many years. We have good managers and some very powerful institutions". According to Mr. Sánchez-Asiaín, it will be necessary to distinguish between troubled and strong institutions in order to avoid generalising about the health of the system.

"I also believe that the financial system, especially the savings banks, needs to deleverage, and the sooner they start, the better", said Mr. Sánchez-Asiaín, explaining that "we’ve already lost a few key months". He added: "Deleveraging is not just a merger, and a merger is not deleveraging. Deleveraging means that you stop giving loans, unfortunately, that you increase your capital and reserves, that you reduce unprofitable distribution in the short term, and that you try to diversify the sources of your deposits, and we have been insufficient on all of these fronts since the beginning of the year".

Mr. Sánchez-Asiaín wrapped up his talk by offering some reflections on the Spanish and international financial systems. He began by noting the "savings banks’ history of success". In more than 100 years of history, he said, the savings banks – "unlike the other banks"– have never required aid. He suggested that the actions of other countries’ governments could lead to a repeat of the financial crisis. He warned of the dangers of certain calculation models and insisted that they be avoided. According to Mr. Sánchez-Asiaín, the failure to restructure and the lack of credit will not have effects in the short term, but rather in 2012 and 2013. "That’s when we will start to see the effects if we don’t restructure the financial system", he concluded.




 

For further information:
ignacio.ramon@esade.edu