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Failure Highlights Woes Facing Spanish Banking

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CÓRDOBA, SPAIN — “In the name of Jesus Christ, amen.”

With this blessing, the chairman used to open 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, to avoid collapse, CajaSur was taken over by Spain’s central bank.

“There was no need to say more or go further since we already spend plenty of our time praying,” joked Father 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 historic Andalusian city.)

Praying, however, did nothing to 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 pawn shops 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 banking powers they had held since 1864, even after a merger with a secular local competitor that created the current CajaSur entity 15 years ago.

While CajaSur may have been an anomaly in that regard, it was all too typical of what has gone wrong with the cajas, which control about half the banking assets in Spain. Local political parties in Córdoba accumulated loans from the bank totaling €87 million, or $106 million, over the past five years.

More recently, with CajaSur maintaining its generosity towards 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 took so long before finally consolidating and cleaning 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 elsewhere 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 call for a more far-reaching 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.

If we ever do have the second coming very soon Jesus is going to be very p155ed.

Still it's all contained and the global economy is recovering in a very consensual way.

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  • 395 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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