Thursday, May 10, 2012

Spain nationalizes Bankia

The savings bank Bankia (formerlly Caja Madrid and others), which have a host of toxic assets (valued in €31.8 billion) in the shape of real state that nobody will buy at present non-market still inflated prices, is being nationalized. 

Technically the State has absorbed 100% of the matrix company Banco Financiero y de Ahorro (BFH), what implies 45% of Bankia and effective control. 

The reason is that the injection of €4.5 billion is not likely to be paid off any time in the near future, so the company has paid back with its own stock. It still remains to see if the state can get a benefit from the company, which has 10 million customers (current accounts, small savers, etc., a very solid capital even if of low profitability) and participations in other major companies like Mapfre (insurances), Iberdrola (energy) or Indra Sistemas (informatics and military), quite solid in principle. 

It seems apparent that the destitution of CEO Rodrigo Rato (1996-2004 Minister of Economy under Aznar and 2004-2007 IMF Director) was asked by the IMF itself, who may know quite a bit about the personal reputation of Rato, I imagine. 

He's been replaced by a member of the Basque oligarchy of Neguri, José Ignacio Goirigoizarri Tellaeche, who is considered a safe bet

Source: Gara[es].

Brief Analysis

With many doubts, nationalization is always better than outright bailout. Now let's see if the state can make money out of it or will be another case of public waste. 

Being a savings bank anyhow, what is now Bankia used to be a semi-public entity and was only privatized recently as part of the EU-promoted privatization of everything. We now see the results of privatizing key business which are of public interest. 

In my opinion, even in a market economy (I'm a commie, you know), key industries like savings banks (which fulfill a role of guaranteeing that other banks are not too abusive), electricity providers (which have no competence), public transport, etc. must be public property. The markets can't effectively manage such monopolies without nefarious consequences. Markets can only work where a very large number of providers exist, such as in retail vendors and the like, not in big business and certainly not in savings banking. 

Private business in order to work properly must be contained in their size and market share. If the State wants to promote markets (and not oligopolies!) in some sectors it must limit the possible growth of any business: there must be a top prize and easy access for new entrepreneurs. Otherwise markets become stagnant, rigid and cause serious troubles. 

No comments:

Post a Comment

Please, be reasonably respectful when making comments. I do not tolerate in particular sexism, racism nor homophobia. The author reserves the right to delete any abusive comment.

Comment moderation before publishing is... ON