Cata­lan Banks ow­ing ECB $77 bil­lion may stall in­de­pen­dence drive

The Pak Banker - - Front Page -

MADRID

Cata­lan banks may ob­struct the re­gion’s path to pos­si­ble in­de­pen­dence af­ter bor­row­ing about 60 bil­lion eu­ros ($77 bil­lion) from the Euro­pean Cen­tral Bank.

Caix­aBank, Spain’s third­biggest bank, took about 20 bil­lion eu­ros in cen­tral bank fund­ing, ac­cord­ing to the Barcelon­abased com­pany’s ac­counts. Banco Sabadell SA, a Cata­lan lender that be­came Spain’s fifth-big­gest af­ter a string of ac­qui­si­tions, has bor­rowed about 27 bil­lion eu­ros. The re­gion’s Pres­i­dent Ar­tur Mas called early elec­tions for Nov. 25 in a gam­bit that may trig­ger a drive for in­de­pen­dence and risks strand­ing a new Cata­lan state out­side the Euro­pean Union as well as sev­er­ing ties to Spain. The re­gion’s banks, like other Span­ish lenders, tapped the ECB’s low-cost fund­ing when Spain’s eco­nomic cri­sis shut them out of debt mar­kets.

“The Cata­lan fi­nan­cial sys­tem is still on life sup­port from the ECB,” said Ed­ward Hugh, an econ­o­mist and board mem­ber of Catalunya Banc, a Barcelona-based lender na­tion­al­ized last year and that has used about 19 bil­lion eu­ros of cen­tral bank fund­ing. “Peo­ple need to start fac­ing up to the fact that Cat­alo­nia has to be in the euro.” Euro­pean of­fi­cials, in­clud­ing Com­pe­ti­tion Com­mis­sioner Joaquin Al­mu­nia, a Spa­niard, and Euro­pean Com­mis­sion Pres­i­dent Jose Manuel Bar­roso have said that a new Cata­lan state would have to reap­ply for EU mem­ber­ship.

Mas has said the ques­tion of Cata­lan in­de­pen­dence would “still be posed,” even if the new coun­try was ex­cluded from the EU. Mas wants Cat­alo­nia to sep­a­rate from Spain while re­main­ing part of the EU and keep­ing the euro.

The com­bined as­sets of Caix­aBank, Sabadell and Catalunya Banc amount to 590 bil­lion eu­ros, or al­most three times the size of a Cata­lan econ­omy that’s sim­i­lar in size to Greece. In Ire­land, the as­sets of domestic banks amounted to 3.3 times the size of the coun­try’s econ­omy in 2008 when the state guar­an­teed most of their li­a­bil­i­ties to pre­vent a col­lapse of the fi­nan­cial sys­tem, ac­cord­ing to Bloomberg News cal­cu­la­tions based on lenders’ an­nual re­ports and Ir­ish Cen­tral Statis­tics Of­fice GDP data for that year.

To be sure, the process that could lead to in­de­pen­dence is still in its early stages. Mas pledged to hold a ref­er­en­dum on the is­sue within four years of the elec­tions. He may choose to hold the con­sul­ta­tion in 2014 to co­or­di­nate it with a sim­i­lar process due in Scot­land, An­to­nio Bar­roso, an an­a­lyst at Eura­sia Group in Lon­don, said in a Nov. 20 re­search note.

“Many things still have to hap­pen be­fore some­one starts ask­ing the tough ques­tions about what hap­pens with the banks,” said Ce­sar Moli­nas, a con­sul­tant and former head of Euro­pean fixed in­come at Mer­rill Lynch & Co.

Caix­aBank and Sabadell, based in the town of the same name near Barcelona, de­clined to com­ment on the im­pact of even­tual Cata­lan in­de­pen­dence. In a sem­i­nar in Barcelona last month, Sabadell Chair­man Josep Oliu called on politi­cians to cre­ate con­di­tions to al­low busi­ness to con­tinue with suf­fi­cient le­gal guar­an­tees.

The Cata­lan government wasn’t im­me­di­ately avail­able for com­ment. Caix­aBank Chair­man Isidro Faine and “the rest of the rep­re­sen­ta­tives of big busi­ness in Cat­alo­nia are go­ing to be very wor­ried by all this,” said Barcelona-born Moli­nas in a phone in­ter­view. Caix­aBank, the big­gest lender in Cat­alo­nia, with 344 bil­lion eu­ros of as­sets, had avail­able funds of 42 bil­lion eu­ros in June, ac­cord­ing to its ac­counts. The is­sue of ECB fund­ing is only one of sev­eral is­sues fac­ing banks, said Jose Gar­cia Mon­talvo, an eco­nom­ics pro­fes­sor at Pom­peu Fabra Univer­sity in Barcelona. An in­de­pen­dent Cat­alo­nia out­side the euro would have to set up its own body to over­see its banks at a time when Spain and other EU na­tions.

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