The integration of the Cajas and the financial reform:
The combined solution for the troubled financial environment
A. Núñez-Lagos / G. Núñez Fernández/ R. García Llaneza
Madrid, June 8, 2012
CONTENTSFINANCIAL CRISIS MADE IN SPAIN
1 THE ASSESSMENT: 2010 - A NEED FOR RESTRUCTURING
1.1
Nature and features of savings banks
1.2
Consolidation: drivers and legal alternatives
1.3
Overview of the restructuring process
2 THE DESIGN: A CONTRACTUAL GROUP
2.1
IPS and contractual group: fundamentals of the design
3.2
Establishment of a contractual group
3.3
Rationale for the contractual group
3 EVOLUTION THROUGH “BANKISATION”
3.1
2011-2012: legal developments
3.2
Reasons for “bankisation”
3.3
Contractual group 2.0
4 THE 2012 REFORM
4.1
Spanish Capital Adequacy Requirements
4.2
Some figures
2
1. THE ASSESSMENT: 2010 - A NEED FOR RESTRUCTURING
3
Origin local and social purpose
limited scope of activities
Legal nature Business / foundation
Differences with banks No share capital
No shareholders
Regulation and supervision: multi-level competence
1. 2010 - A NEED FOR RESTRUCTURING
1.1Nature
and featuresof
savings banks
4
Non-structural issues
High exposure to real estate and construction businesses
Excess capacity
Weaker internal demand – narrower margins
Dependency on wholesale financial markets
Geographic concentration risk
Structural issues
Corporate governance
Capital difficulties: no capacity to increase share-capital
1.1Nature
and featuresof
savings banks
1. 2010 - A NEED FOR RESTRUCTURING
5
Enhancing solvency and liquidity is the goal
Consolidation is the answer Internal capital generation
Downsizing
Corporate governance
Concentration risk
Cost of finance
Volume
Credit rating
Accounting treatment
New capital instruments
1.2Consolidation:
drivers andlegal
alternatives
1. 2010 - A NEED FOR RESTRUCTURING
6
Consolidation instruments available Merger
IPS/Consolidated group of credit institutions
Re-organisation process 2009-2010: first round of consolidation: mergers and creation of
contractual groups
2011: “bankisation” of the financial business
2012: second round of consolidation. The market test
Regulatory drivers
increased capital requirements
conditional State support
1.2Consolidation:
drivers andlegal
alternatives
1. 2010 - A NEED FOR RESTRUCTURING
7
31.12.2009 45 cajas. Average size 30bn € Total Assets
2010 7 mergers 5 contractual groups 2 cajas resolved and transformed into foundations Nearly €1,000 bn assets involved in corporate transactions. Only 5
cajas had not taken part in any : Kutxa, Vital, Ibercaja, Pollensa, Ontinyent (6.3 % total assets)
2011 All cajas (except for Caixa Pollensa and Caixa Ontinyent (0.1% total
assets)) transferred their assets and liabilities to banks 1 more contractual group (Kutxabank) 1 caja resolved. Assets assigned to traditional bank. 3 more cajas + 1 bank taken over by the State
2012 (Jan-May) 3 bank mergers State has sold out 1 out of the 4 entities taken over in 2011.
Remainder to go in 2012. Sold-out cajas will merge into assignee entities
11 operating entities. Average size 103bn € Total Assets
1.3Overview
of therestructuring
process
1. 2010 - A NEED FOR RESTRUCTURING
Appendix 1
Appendix 2
Appendix 3
Appendix 4
8
Limited success of mergers Practical evidence
Few transactions Regional scope, except Bankia
Resilience factors Economic limitations Higher cost of synergies Loss of intangible assets Limited accounting impact Issues related to corporate governance and capital raising
remain unsolved
1.3Overview
of therestructuring
process
1. 2010 - A NEED FOR RESTRUCTURING
9
2. THE DESIGN: INSTITUTIONAL PROTECTION SCHEME/CONTRACTUAL GROUP
10
IPS (Institutional Protection Scheme) Contractual undertaking to provide liquidity and
capital
Immediately available funds
Aggregated capital and risk monitoring
24 month prior notice to quit
Legal framework: Art. 80.8 Directive 48\2006\CE
Subject to Banco de España consent.
Effect: zero weight of cross-exposures
2. IPS / CONTRACTUAL GROUP
2.1IPS and
contractualgroup:
fundamentalsof thedesign
IPSInstitutionalProtection
Scheme
11
Contractual group Goals sought: transferring control to a single entity.
Integrated businesses under common direction
Financial solidarity: shared solvency, liquidity and results
Instrument: IPS enhanced with additional elements for financial and operational integration
Legal framework
Until April, 2010, not specifically provided for
Current
– article 8.3.d) Law 13/1985
– Royal Decree-law (“RD-law”) 10/2011
– Regional legislation
2. IPS / CONTRACTUAL GROUP
2.1IPS and
contractualgroup:
fundamentalsof thedesign
Contractualgroup
12
Requirements for an “enhanced” IPS Centralised policies, business strategies and levels and
measures for internal control and risk management
– if the parties are savings banks, central entity must be a public limited liability company (S.A.) under “common control”
Solvency and liquidity commitment. Minimum 40% capital
Pooling of individual results. Minimum 40%
Term. Minimum 10 years. BdE to authorise exit
Consequences of an “enhanced” IPS Qualifies as group for accounting/regulatory purposes
May be exempted from individual solvency requirements
One player on the market
2. IPS / CONTRACTUAL GROUP
2.2Establishment
of acontractual
group
Legalfeatures
13
Shareholding structure
Caja 1 Caja 2 Caja 3
Central entity(bank)
Caja 1 Caja 2 Caja 3
Central entity(bank)
Integration Agreement
Control structure
(unified management)
2. IPS / CONTRACTUAL GROUP
“REVERSAL EFFECT”
14
The Integration Agreement Political structure
Exchange ratio (quotas)
Consolidation and “circular control”
Economic structure
Financial integration ► solvency and liquidity support ► cash pooling ► profit pooling
Functional integration ► policies ► operations ► businesses
Legal structure
Stability and enforcement mechanisms
2.2Establishment
of acontractual
group
IntegrationAgreement
2. IPS / CONTRACTUAL GROUP
15
Strategic rationale High level integration
Limited cost of synergies
Resolves certain issues inherent to savings banks’ legal nature
Wider accounting impact
Economic rationale Preserves the savings banks and their social role
Dual business structure (franchise-type) / dual, specialised organisation
Parent entity is a bank
2. IPS / CONTRACTUAL GROUP
2.3Rationale
for thecontractual
group
16
3. EVOLUTION TRHOUGH BANKISATION
17
Transformation into a foundation Italian precedent
Indirect financial business Control/joint control + ≥25% share capital
Cajas live on as credit entities
Kick-start:”la Caixa”
3. EVOLUTION THROUGH “BANKISATION”
3.12010-2011:
legaldevelopments
Newperspectives
afterRD-law 11/2010
RD-law 2/2011A new urge
on consolidation
Twofold purpose Reinforce the solvency of the financial system
New capital requirements (primarily applicable to cajas)
Reform of the FROB legal framework
Promote further restructuring in the savings bank sector
18
3. EVOLUTION THROUGH “BANKISATION”
3.12010-2011:
legaldevelopments
RD-law 2/2011A new urge
on consolidation
Solvency requirements (additional to BIS III) Principal capital:
– Composition: roughly equivalent to BIS III/CRR IV
– Scope: consolidated
Minimum required:
– general: 8% RWA
– 10% RWA if high dependency on wholesale finance (>20%) and no significant third-party shareholders (≥20%)
Impact on banks / cajas / credit unions
Timeframe for compliance: 30.9.11/31.12.11
Amendment of FROB legal framework Ordinary shares become the only instrument available for
support
Exception: credit unions
Total bankisation of cajas
Rules on corporate governance
19
Strategic options under RD-law 2/2011 All cajas (but for a few exceptions) need to recapitalise
Alternatives for recapitalisation
raising capital on the market: public or private placement
corporate transactions
theoretically, disinvestments
Each alternative implies total bankisation
of self-standing entities
of IPSs: the existing structure proves a disadvantage on the market
– excessively complex
– locates value outside the bank
3. EVOLUTION THROUGH “BANKISATION”
3.2Reasons
for“bankisation”
Non-compliantentities
20
Even well capitalised entities have strong incentives to “go bank”
Avoid competitive disadvantage of being a caja
Re-organise assets and re-focus strategies
Set up a platform for future corporate transactions
Reduce cost of capital / finance
Split business / charity
3. EVOLUTION THROUGH “BANKISATION”
3.2Reasons
for“bankisation”
Compliantentities
21
3. EVOLUTION THROUGH “BANKISATION”
3.3contractual
group2.0
A contractual group without the substance No dual business structure
Virtual merger becomes actual:
full business integration
full financial solidarity
Integration Agreement becomes a Shareholders’ Agreement
Present and future Contractual groups remain as a safe harbour...
... but are not likely to live for ever
no room for new groups
interaction with banks will dilute the cajas’ shareholding
preserving the legal form of a caja may probably cease to be a priority
22
4. THE 2012 REFORM
23
RDL 2/2011 Required new minimum capital:
o Non-listed entities or
o Entities highly dependant on wholesale finance
o Others:
RDL 2/2012 Reinforcing provisions related to NPLs and foreclosures.
RDL 18/2012 Reinforcing provisions related to all real estate risks.
Asset Management Companies.
4. THE 2012 REFORM
4.1Spanish Capital
AdequacyRequirements
8%
10%
24
4. THE 2012 REFORM
4.2Some
figures
Increase level of provisions: € 54,000 M
Increase level of provisions: € 30,000 M
Source: Ministerio de Economía y Competitividad
25
4. THE 2012 REFORMFinancial sector reform 2nd phase. May 2012: Additional increase in provisions for Performing assets (around € 30 bn)
26
Source: Ministerio de Economía y Competitividad
APPENDICES1 SAVINGS BANK SECTOR 31.12.2009
2 SAVINGS BANK SECTOR 2010
3 SAVINGS BANK SECTOR 2011
4 SAVINGS BANK SECTOR JAN-MAY 2012
Source: statistical information of the Confederación Española de Cajas de Ahorros (www.cajasdeahorros.es)
27
APPENDICESAPPENDIX 1 - SAVINGS BANK SECTOR 31.12.2009
Caja Total assets (bn €)
Caja Mediterráneo (CAM) 75.532
Caja de Ahorros y M.P de Ávila 7.115
Monte de Piedad y Caja General de Ahorros de Badajoz
4.248
Caixa d´Estalvis i Pensions de Barcelona. (la Caixa)
271.872
Caixa d´Estalvis de Catalunya 63.649
Bilbao Bizkaia Kutxa 29.806
Caja de A. y M. P. del Círculo Católico de Obreros de Burgos
5.208
Caja de Ahorros Municipal de Burgos 12.578
Caja de Ahorros y M. P. de Extremadura 7.590
Caja de Ahorros y M. P. de Córdoba (Cajasur)
18.960
Caja de Ahorros de Galicia 46.340
Caja de Ahorros de Castilla La Mancha 26.035
Caixa d´Estalvis de Girona 7.815
Caja General de Ahorros de Granada 13.759
Caja de Ahorro Provincial de Guadalajara 1.755
Caja Provincial de Ahorros de Jaén 0.982
Caja España de Inversiones, Caja de Ahorros y M. P.
25.254
Caja de Ahorros de La Rioja 3.873
28
APPENDIX 1 - SAVINGS BANK SECTOR 31.12.2009
Caja Total assets (bn €)
Caja de Ahorros y M. P. de Madrid 191.904
M.P. y C.A. de Ronda, Cádiz, Almería, Málaga y Antequera (Unicaja)
34.185
Caixa d'Estalvis Comarcal de Manlleu 2.643
Caixa d´Estalvis de Manresa 6.545
Caixa d´Estalvis Laietana 9.191
Caja de Ahorros de Murcia 22.140
Caja de Ahorros y M. P. de Ontinyent 0.980
Caja de Ahorros de Asturias 15.829
Caja de Ahorros y M. P. de Las Baleares 14.114
Caja Insular de Ahorros de Canarias 9.305
Caja de Ahorros y Monte de Piedad de Navarra
19.451
Caja de Ahorros de Pollensa 0.344
Caixa d´Estalvis de Sabadell 13.318
Caja de Ahorros de Salamanca y Soria (Caja Duero)
21.390
Caja de Ahorros y M. P. de Gipuzkoa y San Sebastián
21.095
Caja General de Ahorros de Canarias 13.910
Caja de Ahorros de Santander Y Cantabria 10.343
Caja de Ahorros y M. P. de Segovia 6.172
APPENDICES
29
APPENDIX 1 - SAVINGS BANK SECTOR 31.12.2009
Caja Total assets (bn €)
Caja de Ahorros Provincial San Fernando de Sevilla y Jerez
28.244
Caixa d´Estalvis de Tarragona 10.829
Caixa d´Estalvis de Terrassa 12.890
Caja de Ahorros de Valencia, Castellón y Alicante (Bancaja)
111.459
Caixa de Aforros de Vigo, Ourense E Pontevedra
31.738
Caixa d´Estalvis del Penedès 23.042
Caja de Ahorros de Vitoria y Álava 9.252
Caja de Ahorros y M. P. de Zaragoza Aragón Y Rioja
44.691
Caja de Ahorros de la Inmaculada de Aragón 11.938
APPENDICES
30
APPENDIX 2 - SAVINGS BANK SECTOR 1.1.2010 / 31.12.2010
1. Mergers
Resulting entity Merged entitiesTotal assets of the merged entities
(Bn € )
Total assets of the resulting entity
(Bn € at 31.12.2010)
Catalunya Caixa Caixa Catalunya Caixa TarragonaCaixa Manresa
64.106 3
10.802 3
6.967 3
76. 585
Nova Caixa Galicia CaixanovaCaixa Galicia
31.826 3
44.299 3
73.493
Caja España de Inversiones Salamanca
y Soria
Caja EspañaCaja Duero
25.199 2
21.440 2
45.711
Unnim Caixa ManlleuCaixa SabadellCaixa Terrassa
2.668 2
13.205 2
12.842 2
28. 353
La Caixa ”la Caixa”Caixa Girona
274.966 3
7.498 3
285.724
Cajasol CajasolCaja Guadalajara
28.085 3
1.681 3
71.373 *
Unicaja Unicaja Caja de Jaén
33.533 1
0.910 1
34.344
N.B.: (1) Last Balance Sheet before the Merger: 31.03.2010; (2) Last Balance Sheet before the Merger: 30.06.2010; (3) Last Balance Sheet before the Merger: 30.09.2010 * As of 31.12.2010 Cajasol was integrated in Banca Cívica
APPENDICES
31
APPENDIX 2 - SAVINGS BANK SECTOR 1.1.2010 / 31.12.2010
2. Contractual Groups
IPSIntegrated
entities
Total assets of the integrated entities
30.09.2010(Bn € )
Consolidated total assets as of
31.12.2010 (Bn €)
Banco Financiero y de Ahorros/Bankia
Caja MadridBancaja
Caja Insular de CanariasCaja de ÁvilaCaja Segovia
Caixa LaietanaCaja Rioja
198.051112.027 9.303 6.793 6.179 9.463 3.821
328.277
Banco Base*
* Broke up in March , 2011
CajasturCAM
Caja CantabriaCaja Extremadura
36.682 73.939 10.103 7.390
130
Banca Cívica Caja NavarraCajasol
Caja General de Canarias
Caja de Burgos
18.02228.085
5.071
71.374
Mare Nostrum Caja MurciaCaixa PenedèsCaja Granada
Sa Nostra
21.54922.972 13.263 13.939
69.859
Caja3 CAICaja CírculoCaja Badajoz
11.686 5.071 4.098
20.763
APPENDICES
32
APPENDIX 2 - SAVINGS BANK SECTOR 1.1.2010 / 31.12.2010
3. Resolved Saving Banks
Resolved entity
Purchasing entity
Total assets purchased
(Bn €)
Consolidated assets of purchaser
after purchase (Bn
€)
Is the purchaser a
caja or a bank
controlled by a caja?
Caja Castilla-La Mancha*
Cajastur (CCM Bank)
24.5661 37.6291 YES
Cajasur BBK (BBK Bank) 15.3002 45.2152 YES
N.B: * Acquisition was effected by end of 2009. (1) Caja Castilla La Macha´s total assets value as of 31.03.2010. Cajastur’s total assets value as of 30.06.2010 (2) Cajasur’s total assets value as of 31.12.2010. BBK´s total assets value as of 31.03.2011
APPENDICES
33
APPENDIX 3 - SAVINGS BANK SECTOR 1.1.2011 / 31.12.2011
1. A New Contractual Group: Kutxabank
IPSIntegrated
entities
Total consolidated
assets of integrated
entities as of 31.12.2011 (Bn €)
Kutxabank* BBK KUTXA
VITAL
42.570 20.016 8.365
N.B: * First consolidation date was 01.01.2012
APPENDICES
34
APPENDIX 3 - SAVINGS BANK SECTOR 1.1.2011 / 31.12.2011
2. Transfer of Assets and Liabilities to Banks
EntityMethod of
indirect financial business
Beneficiary bankConsolidated assets as of 31.12.2011
Beneficiary bank is controlled by
one or more cajas
Banco Financiero y de Ahorros/Bankia
IPS BANKIA, SA 305.820 YES
Mare Nostrum IPS GRUPO BMN, SA 67.201 YES
Banca Cívica IPS GRUPO BANCA CÍVICA, SA
71.817 YES
Caja3 IPS BANCO GRUPO CAJA3, SA
20.725 YES
LIBERBANK* IPS LIBERBANK, SA 50.847 YES
Kutxabank** IPS KUTXABANK, SA - YES
N.B.: * Liberbank is the Contractual Group resulting from the integration of Cajastur, Caja Extremadura y Caja Cantabria, after the breaking up of Banco Base. ** Actual first consolidation date was 01.01.2012
APPENDICES
35
APPENDIX 3 - SAVINGS BANK SECTOR 1.1.2011 / 31.12.2011
2. Transfer of assets and liabilities to banks
Entity Method of
indirect financial business
Beneficiary bankConsolidated assets as of 31.12.2011
Beneficiary bank is controlled by
one or more cajas
La Caixa Individual indirect financial business
CAIXABANK, SA 270.425 YES
Ibercaja Individual indirect financial business
IBERCAJA BANCO, SA 45.144 YES
CAM Individual indirect financial business
BANCO CAM, SAU 70.805 YES
Unicaja Individual indirect financial business
UNICAJA BANCO, SA 38.252 YES
Caja España de Inversiones Salamanca y Soria
Individual indirect financial business
BANCO DE CAJA ESPAÑA DE INVERSIONES, SALAMANCA Y SORIA, SA
42.405 YES
Catalunya Caixa Individual indirect financial business
CATALUNYA BANC, SA 77.049 YES
Nova Caixa Galicia Individual indirect financial business
NCG BANCO, SA 72.236 YES
Unnim Individual indirect financial business
UNNIM BANC, SA 28.288 YES
APPENDICES
36
APPENDIX 3 - SAVINGS BANK SECTOR 1.1.2011 / 31.12.2011
3. One caja is resolved.
Purchased entitiy
Total assets of the purchased company as of
31.12.2011 (Bn €)
Purchasing company
Total assets of the purchaser as of 31.12.2011 (Bn
€)
Is the purchaser a caja or a bank controlled by a
caja?
CAM 70.805 Banco Sabadell 100.437 NO
4. Four entities are taken over by the State
Entity taken overTotal assets of the
entity as of 31.12.2011
State´s ownership (%)
NGC Banco 72.236 93,16
Catalunya Bank 77.049 89,74
Unnim Banc 28.919 100
Banco de Valencia 23.699 91
APPENDICES
37
APPENDIX 4 - SAVINGS BANK SECTOR JAN 2012 / MAY 2012
1. Two bank mergers
Absorbed bank
Total assets of the purchased
bank as of 31.12.2011 (Bn €)
Absorbing bank
Total assets of the purchaser as of 31.12.2011 (Bn
€)
Is the purchaser controlled by a
caja or a group of cajas?
Banco Grupo Caja3 20.725 Ibercaja Banco 45.144 YES
Banca Cívica 71.817 CaixaBank 270.425 YES
Banco de Caja España de Inversiones,
Salamanca y Soria
42.405 Unicaja Banco 38.252 YES
2. Sale of the cajas taken over
Sold-out entity
Total assets of the sold-out entity as of
31.12.2011 (Bn €)
Purchasing entity
Total assets of the purchaser as of 31.12.2011 (Bn
€)
Is the purchaser controlled by a
caja or a group of cajas?
Unnim Banc 28.288 BBVA 597.688 NO
Catalunya Bank 77.049 - - -
NCG Banco 72.236 - - -
Banco de Valencia 23.699 - - -
APPENDICES
38
39
