“Germany still refuses to investigate its smaller banks”

Spanish banks may need some €10 billion as additional provisions after re-negotiated loan rates have been reviewed. The government says it’s a figure the financial system will have no difficulty to find.

All banks in Europe tell the story the way they most like. Our big, global banks have enough tools to report profits or loses according to their convenience. They have passed several stress tests, and capital increases and re-capitalisations have come and gone. Do we know if our banks are clean, now? No, we don’t.

Then, particularly the largest Spanish banks face a few challenges in their markets in Latin America, with Mexico on the brink of a civil war, and Brazil, where there are fears of a market bubble. The notion of those €10 extra billion carries little meaning.

Nevertheless, how could it affect the banking sector, and the overall economy?

The situation today is quite stable, it’s time to find a crisis exit. The government could cut the VAT fast or raise it gradually, which would slow down the recovery. But the small and medium size companies that have survived so far are now used to the lack of credit. And banks keep avoiding granting loans because they don’t want any more risk.

There is this non-confirmed report by the Bank of Spain about higher loan late-payment ratios than officially assumed. Has it taken anyone by surprise?

Unfortunately, this only adds to the already huge uncertainty in the sector. I don’t think banks trust each other, and we could see that when the interbank credit market was all but closed.

How damaging for the sector’s image was sending former Caja Madrid chairman Miguel Blesa to prison?

It had very little impact. There are more cases like this one in Europe and any of the bankers has really sentenced to jail. But the judicial action is important and has made them face their responsibilities.

When will Germany’s regional banking sector reveal its actual situation? The Sparkassen behave in quite an opaque manner.

Chancellor Angela Merkel has stated clearly that German banks with less than €1 billion capital will not be investigated. They are doing their own ‘kicking the can down the road’, of course, and will bring the real troubles to the open when it is convenient for them. It reminds me of the situation in Spain a few years ago. Everybody knows the weaknesses of the German banks, which still hold some 2007 US subprime credit.

Was it inevitable to rescue the banks?

I’d rather say what wasn’t inevitable was to mix strong banks and weak banks in big groups. For instance, Bankia would now be in a better place if Caja Madrid had suffered an asset haircut instead of being put into a bag with other savings banks. The result isn’t attractive for any investor.