Photo: Bankia's head office building at plaza de Castilla in Madrid. (Credit: Bankia's official web site.)
Bankia
Even though Bankia was created only in 2010 from the amalgamation of seven de facto bankrupt Spanish regional savings banks, its oldest constituent predecessor -- Caja Madrid -- dates from 1702.
Before the 20th century, a state-funded social welfare system to alleviate the hardship faced by the poor during an economic recession was practically non-existent. To help the underclass to survive, the Roman Catholic Church had historically run charitable pawnshops to allow the poor to obtain a small temporary loan (at zero or very low interest rate) or to convert whatever few possessions that they had into cash. The mandate of these charitable pawnshops and loan institutions was not to maximize profits but to offer blacksmiths, farmers, labourers, artisans, servants and the unemployed financial assistance in times of need.
The first church-sponsored charitable pawnbrokers began in Italy in the 1460s, and the concept spread to Spain and Portugal and eventually to their overseas colonies also. In Spain, such a charitable pawnshop and loan office was known as a “monte de piedad”, or literally a mound of piety. In 1702, an Aragon priest named Francisco Piquer Rudilla established a Monte de Piedad in Madrid, which relied on donations by the city’s wealthy aristocrats to provide small interest-free loans to the working class and underclass on collateral such as tools, clothes or jewellery. In 1836 the Monte de Piedad de Madrid began charging moderate interest on loans to cover increasing operating overhead costs.
In 1838, a Royal Decree created a savings bank known as the Caja de Ahorros de Madrid (literally, the Savings Casket of Madrid), which is based on the non-profit savings bank model of promoting savings for the working class. The savings bank also had a mandate of social responsibility and Unitarianism by financing local businesses, as well as educational and hospital infrastructure. During much of the 19th century, Caja de Ahorros and Monte de Piedad offered similar service to similar customers.
In 1896, the Monte de Piedad and Caja de Ahorros de Madrid merged to become Monte de Piedad y Caja de Ahorros de Madrid, whose order of the words was reversed eventually to Caja de Ahorros y Monte de Piedad de Madrid as the banking side of the business became much more prominent than the pawnbroking side.
Over time, as the state took increasing responsibility for social welfare from the Church, the savings bank dropped the “Monte de Piedad” part of the name completely and became known simply as Caja Madrid.
A modernization program in the 1970s led to Caja Madrid offering more banking products than previously. During the decade many of its systems and processes were also computerized. Then between the 1980s and 1990s, the bank expanded geographically outside of the capital region.
Caja Madrid’s nationwide expansion in the latter half of the 1990s coincided with a decade-long real estate bubble that started in 1996 and burst in 2008. As in most asset bubbles, the causes of the housing craze are complex and inter-related. The discussion and theorization of which is not the intention of this article. Suffice to say that between 2000 and 2007, some over 600,000 new dwellings were built yearly in Spain, a number that exceeded the combined figure of the other four major EU economies Germany, France, the United Kingdom and Italy. In total, some five million new homes were constructed in those eight years by the time the speculative housing craze came to a sudden end.
Riding this mad real estate euphoria, between 1996 and 2010, Caja Madrid expanded exponentially and grew five times in size and became the No. 4 financial institution in the country. But perhaps much more tellingly about Caja Madrid’s over-sized exposure to the housing market, the No. 4 ranked Caja Madrid held the most real estate loans amongst all Spanish banks.
The overheated housing bubble was not confined to Spain, as similar market conditions also happened in the United States, Great Britain, Ireland, Iceland, Portugal, Italy and Greece; and to a lesser degree other markets around the world. In 2007, the unsustainable housing bubbles first began to burst in the U.S. and Britain, then quickly spread to other markets. This marked the beginning of the infamous 2007 global credit crisis. Banks around the world saw their formerly steady and cheap funding sources disappeared overnight as the inter-bank credit market froze. Banks and institutional investors refused to renew short-term financing for real estate loans that were at risk of default. Banks, investment funds and credit default swap policy holders found themselves exposed to an incredibly complex and untraceable web of liabilities, potentially exposing themselves to trillions of losses.
In Spain, Caja Madrid was not alone in the midst of this liquidity crisis, as Spain’s entire savings bank industry had been lending recklessly to the real estate speculation. Massive loan losses quickly depleted many banks’ capital base and by July 2010, Spain had to place seven de facto bankrupt regional savings banks (Caja Madrid, Bancaja, Caja Canarias, Caixa Laitana, Caja Rioja, Caja de Ávila and Caja Segovia) into the Sistema Institucional de Protección (“SIP”, literally Institutional Protection Scheme).
Five months later, the Banco de Espana (Spain’s central bank) formally brokered the consolidation of the seven regional savings banks in the SIP under the administration of Banco Financiero y de Ahorros (roughly “Bank of Finance and Savings”), or commonly known as BFA.
The foundation that used to own Caja Madrid ended up with 52% of BFA, followed by Bancaja owning just under 38%, and the remaining five small savings banks collectively held just over 10%. Meanwhile, the Spanish government provided the bank with EUR 4.465-billion of liquidity to keep it afloat.
In March 2011, Bankia was chosen as the new name for the seven consolidated savings banks. Just four months later, the Spanish government rushed to float Bankia on the stock market but found little interest from international institutional investors. Failing to attract overseas professional investors, Bankia turned to those domestic individuals who had little or no knowledge of investing risks and the inside situations of the bank. Bankia branch managers and union leaders encouraged long-time customers and employees to invest by assuring safe and steady returns.
Bankia’s initial public offering in July 2011 raised EUR 3.1-billion when 47.6% of the bank was floated on the stock market, of which 60% of the IPO was offered to 350,000 individual investors. BFA continued to own 52.4% of Bankia.
Unfortunately, less than one year after the IPO, in May 2012 Bankia discovered major discrepancies in its financial accounts, which led to its 2011 financial statement being re-stated from a profit of EUR 309-million into a massive EUR 3.3-billion loss. Immediately Bankia was once again on the verge of collapse. The Spanish government converted its 2010 EUR 4.465-billion loan into preferred shares and took over 100% of BFA, wiping out the stakes of the seven savings banks that formerly owned Bankia. Through BFA, Spain now indirectly controlled 45% of Bankia and became its largest shareholder.
Shockingly, that loan conversion to re-capitalize Bankia was far from enough, and its collapse – if allowed to happen -- would have triggered Spain’s deposit guarantee fund to cover a staggering EUR 60.5-billion of insured deposits. Despite that, depositors would still suffer losses of EUR 52-billion from uninsured deposits. To avoid this disastrous scenario, between December 2012 and December 2013, another Eur 17.96-billion of state aid was injected to BFA (EUR 7.34-billion) and Bankia (EUR 10.62-billion), bringing the total rescue package for Bankia to EUR 22.42-billion. In the restructuring, BFA’s stake in Bankia was raised to 68.4%. The small retail shareholders who bought shares in the 2011 IPO essentially saw their investment wiped out when the shares dropped to “penny stock” levels.
Meanwhile, to satisfy the terms of the state bailout, Bankia sold its American subsidiary City National Bank of Florida to Chilean bank BCI for USD $883-million in May 2013. Caja Madrid originally bought 83% of the City National Bank of Florida for $927 million cash in 2008.
Following a period of stabilization of its books, BFA sold a 7.5% stake of Bankia in February 2014 for EUR 1.3-billion to international institutional investors, representing the first time the Spanish state received a repayment following the EUR 22.42-billion provided to the bank.
Meanwhile, small investors who lost their investment during the first Bankia IPO in 2011 battled in the courts to get compensation. Finally, in January 2016, a Spanish Supreme Court ruling forced Bankia to agree to return the money that the small investors lost when the bank was nationalized in May 2012. Bankia later committed EUR 1.84-billion to fully refund its retail investors for their losses in the doomed 2011 initial public offering.
Then in December 2017, BFA sold another 7% of Bankia for EUR 818-million, reducing its stake to 60.6%. The mathematics of BFA’s investments and divestments in Bankia between the 2013 and 2017 does not work out based on the official press releases. One can only presume that BFA had converted some of Bankia’s debts into equity holdings.
In 2018, Bankia bought Banco Mare Nostrum in stock for EUR 825-million. Like Bankia itself, Banco Mare Nostrum was created through the amalgamation of several bankrupt savings banks (Caja Murcia, Caixa Penedès, Caja Granada and Sa Nostra).
In September 2020, Bankia agreed to merge with fellow Spanish lender CaixaBank to create the largest Spanish bank in terms of domestic market share and assets. The acquisition valued Bankia at EUR 4.3-billion (USD $5.2-billion). At the end of 2019, Bankia served almost eight million clients via its mobile and on-line platforms, over 5,300 ATMs and almost 1,700 branches.
The CaixaBank-Bankia merger closed in March 2021 and the Spanish state’s 61.8% stake in Bankia would be diluted to 16.1% of the enlarged CaixaBank. The La Caixa Foundation, one of Europe’s biggest charities, would remain CaixaBank’s largest shareholder with 30 per cent of the group compared with its current 40 per cent stake.
