From The Horse's Mouth

Spanish news reports of the past several weeks have featured the machinations to secure the fusion of the Andalusian caja de ahorros, Unicaja, and the similar from the bordering Castilla-La Mancha, CCM. Fusion, of course, is a euphemism for the process undertaken to guarantee the continuity of the latter institution - effectively insolvent due to the ridiculous degree of its involvement in projects based on real estate, reported to constitute some 47% of its loan book without including its direct equity investments in the sector.

This morning's edition of the Ciudad Real daily, La Tribuna, features an interview with one of CCM's governing councillors, José María Fresneda, representing on the board the Manchego political sub-structure known as the Cortes Regionales. Among his bits of insight and wisdom into the present and future of CCM stand out the following:

Referring to the fusion itself, ...the Spanish, European and world financial system has led us to this type of situation. One should not see it is a problem, but as an opportunity... Claiming otherwise is nothing other than a lucubration.

With respect to the audit now being conducted by PwC: The audit is being conducted with great confidentiality. Matters pertaining to financial institutions, and money generally, are very delicate because one has to think of the public first, particularly working people. If one fails to make declarations...it is simply out of respect for people's savings.

With reference to the rumoured pending catastrophe that has forced the fusion with Unicaja: There is no disaster. What is happening here is what takes place in any other financial institution. Simply, we have advanced, for whatever reason, the process of fusion, a dynamic into which many other institutions will enter. To think otherwise is evil,...only serving to cause harm...I am less concerned by the cajas than by other institutions because our control systems are bigger and stronger than those of the others. For this reason there will not be a big problem...as some would have us believe.

The interview was picked up by Google news mid-morning, predating by about six hours the announcement that Unicaja had walked away from the deal, not liking the ratio of guarantees to actual cash offered by the government, and that the Banco de España was taking over CCM and dismissing its directors - presumably including Sr. Fresneda - in the interests of precluding a Monday morning bank run.

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It Hurts So Good

Pardon our absence. Other stuff - particularly the conversion of olive farming from the expensive hobby it is in the current market to something else - required attending to. A touch of that much ballyhooed 'lifestyle transformation' (in this case, manual labour) might be the result. Not the first time.

We followed with interest recently-minted international superstar Paul Krugman's visit to Spain the week before last. We were struck, and duly added his name to our list of pundits with big skin in the disaster game, by exactly how tremendously ambitious this man gives the impression of being. The most beautiful television image was of him earnestly pontificating (nay, scolding) on the economic challenges facing Spain to a starstruck president José Luis Rodríguez Zapatero. The reader might try imagining how Mr. Bean might react to a good, stiff caning at the hands of Angelina Jolie to get a good idea of the scene.

The jist of Krugman's advice for this country and its chronic lack of productivity and competitiveness, given that exchange rate adjustments are not possible, lay in the suggestion that national wage rates would have to go down. From the point of view of workers not employed in the civil service, who have seen their earnings remain essentially stagnant since 1997 as successive PP and PSOE governments refused to deal with the wage-deflationary effects of uncontrolled illegal immigration, this merely adds insult to injury - and is going nowhere.* As for the possibility that well-shielded public functionaries would be more amenable to sacrificing a bit of scratch for the wellbeing of the motherland, the writer asked his wife - direct employee of the Junta de Andalucía - where she might stand on the issue. Plugging parts of the resulting Castillian tirade elicited by the suggestion into some internet translation site, we came up with this:

Not a fucking chance! Just let the sonsabitches try it!

Thanks for your help, Paul.

We recall a quote from John Kenneth Galbraith with regards to his opposition to monetarist economics. If memory serves us right, he doubted that feeding only the elephants would result in so much spillage on the ground that all the other animals would benefit in the end. It seems to us that the economics profession, as if it were to need more impediments, is also left with the unenviable task of trying to put together a full meal on what is left over after national political appetites are satisfied.

*Personal observation of power-conserving populist demagogues of the 'anti-establishment' type, which Mr. Krugman gives every appearance of being, notes the widespread use of the strategy of repeated clamouring for change that politically will not happen. This has the double advantage of maintaining current the alpha clamourer's program (and claim to leadership) and of easily keeping the mob blindly convinced of the righteousness of their claim to redress.

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Investment Opportunity

We last mentioned the Rumasa group of companies a couple of months ago to draw attention to the evident fact that the Spanish economy, through the all too intimate relationship between financial institutions and the real estate and construction industries, had been allowed to devolve into a self-serving cartel - with predictably disastrous consequences. The Ruíz Mateo empire, now named Nueva Rumasa, once again finds itself in the news.

Through one of its subsidiaries, the family-owned, unlisted company is offering to the public unsecured bonds of one year duration yielding 8%, with the money being targetted to the purchase of distressed assets. Among the disadvantages to this plan, as far as the investor is concerned, are:

1). The offer does not include any right to look over the books of the nominal debtor, Carcesa;

2). The minimum investment of 50,000 euros places the entire operation beyond the control of the Spanish markets supervisor, the CNMV. This latter, however, did take some umbrage at Rumasa's original interpretation of this lack of a rule as being an official 'approval' of the operation - a claim which was removed from ensuing publicity.

Certainly appealing to a particular moneyed class of Spaniard to whom we regularly refer to as the hysterical wing of the Partido Popular (which spends much of its time lamenting the arrival of democracy to Spain), our primary doubt concerning this investment would centre on there being no written guarantees that neither the progenitors of this family, nor any of their twelve children, will use the money to finance a coup, later to install a theocracy under the direction of ayatollah Antonio María Ruoco Varela, in the Moncloa.

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Monsterhome Security Administration

Will the Franklin D. Obama Resettlement Administration...

1). Send out Dorothea Lange and her Graflex to photograph your kids staring disconsolately at the dead screens of their battery-less Playstations?

2). Dispatch Margaret Bourke-White to capture the loading of the home cinema on to the Escalade's roof rack as you and your kin wave goodbye to your Las Vegas foreclosure?

3). Resurrect Walker Evans to document the crumbling of the rule of law as outdoor clothesline laws are wholesalely ignored by anarchist community association elements?

4). Call upon Ben Shahn to render immortal your migration to Detroit, where you hear there's cheap land to be had for the takin'?

5). Muster up Alan Lomax, field recorder in hand, to tape your kids rehearsing their ukelele and washtub bass Kurt Cobain tribute?

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Passing The Buck

Last mentioned at IBEX Salad with regard to its providing of 600 million euros of bridge financing to allow Grupo SOS to make off with parts of Bertolli brands (thus permitting, in near-deterministic turn, Caja Madrid to lose 75 million this week alone on its idiot January move - SOS now off 58% in four days), Ahorro Corporación is the self-described 'financial services' arm of 42 Spanish cajas de ahorros. This would mean that they manage the mutual funds sold by their owners' branches, cobble together the mortgage-backed bonds that their bosses now present to the Banco de España as collateral for survival financing (they used to market them, too, when that term applied) and, now, will be assuming responsibility for the immense property porfolio that the cajas have amassed in lieu of actually foreclosing on borrowers.

Cotizalia, and everybody else, reports today that AC will be forming a holding company, to go by the name Ahorro Corporación Soluciones Inmobiliarias - the last two words mean 'real estate solutions' - that will be taking 3 billion euros worth of unsellable properties off the hands of 23 of its proprietors. Apparently denying that they are removing toxic assets from the others' books, they insist that this will function as a long term marketing co-operative whose goods will be sold directly through the branch offices of member institutions. In return for their contribution to the capital social of the new company, subscribing cajas will take an ownership stake commensurate with their degree of involvement. According to the article, substituting shares in ACSI for actual properties will allow members 'to reduce and diversify risks'.

This one comes rapidly on the heels of yesterday's announcement that Moody's had put Ahorro Corporación's A2 rating on downgrade watch, citing its links to its owners and principal clients as the fundamental reason.

More Shuck and Jive

Late last July, Caja Mediterraneo produced the first IPO - so to speak - of a Spanish savings bank. Having successfully sold somewhere between 290 and 360 (according to the source selected) million euros worth of 'cuotas participativas' to unsuspecting branch customers, CAM has now come up with another great idea to shore itself up against exposure to the Valencia property market. Expansión tells us that they are now proposing to fob off more of these same non-voting shares, naturally on a purely voluntary basis, to its employees - in substitution of a portion of their salaries. Given Spain's rather onerous compensation laws in the event that an employee gets fired, we suspect that there will be a direct relationship between the degree of voluntary-ness that might be accorded a given bank teller in this regard and the shortness of time he or she has been working the line.

To avoid the fussing and fighting amongst the ranks that will surely ensue from the certain oversubscription to the offer, management has decided to limit any one person's participation to 12,000 euros.

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S-O-S

We have, over the two years and a few months this blog has been in operation, taken the occasional shot at dominant olive oil bottler, Grupo SOS, and have been short the stock a couple of times - with profitable, but less than stellar, results as the magic hand of the efficient market always intervened to keep its price at multiples several times those typical of the industry. The last time, we reversed our 12€ sale when sudden, but not unexpected support appeared just under 10. The reader can see the ensuing spike, conveniently camouflaged as it was at the time by late October's chaos.

No regrets in that regard, but we certainly would have liked to be on board for today's 38.5% drubbing.

Behind this event was the release of 2008 results. Self-rated as positive by the company itself, the fact of the matter is that they got killed by a health scare and high producer prices (against which they seem to have 'hedged' by overbuying near the peak) in their sunflower oil line. Olive oil sales, despite the lipstick they attempt to put on the pig, have been sluggish and only so with huge price reductions. In the final calculation, operating profits are off 56% just as the company has taken on 200 million euros in new debt to finance their very expensive purchase of parts of the Bertolli brand from Unilever.

Very pissed off will be the four Andalusian cajas de ahorros that own about 35% of the company. But not near as much so as Caja Madrid, which in mid-January sunk 149 million into a new issue intended to finance the takeover of the Italian bottler. Bought at the bargain price of 7€ per share when SOS was trading near 11 on the bolsa, today's 4.92 close puts the Madrid savings bank about 35% in the hole on that brilliant move.

What we'd like to see is a CDS quote for SOS' debt.

We'll be in Madrid for the next couple of weeks for Mrs. Salad to get some repair work done on her hip. Depending on the state of internet access where we are staying, posting may be spotty.

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A Couple Of Anecdotes

The Distant Relative

It seems that the multiply sclerotic great-grandson of the sister of this writer's cousin's grandmother has disbanded the limited company under which he administered his four thousand and some olive trees. Behind this decision lie two facts.

1). His chronically ill condition, although not as yet totally debilitating, prevents him from getting involved directly in the physical travails of the olive farmer, forcing him to hire all of the machinery and labour needed over the course of a year.

2). It is nearly impossible, in the province of Jaén, to find a professional contract farmer with all the necessary tools who will issue a tax receipt for work done, turning the sociedad limitada into a less than efficient form of organizing a business.

In the case of our distant relative, the very forthright gentleman currently taking care of his groves blames his reticence directly on the Junta de Andalucía - seeing as, if he were to own up to the income that has made him the proud owner of more than one ample residence, various bits of agricultural land and a recent model Audi A6, the regional government would immediately increase his taxes and, worse yet, deprive his university-attending daughter of the 3,500 euro annual, no-questions-asked, scholarship they fork over to ensure the continued social and economic progress of the disadvantaged classes of the Andalusian countryside.

The Close Friend's Brother

Occupying a position in a very high profile (in this corner of northern Morrocco at any rate) Andalusian government department*, this gentleman reports that over the most recent period his work schedule has been subtly changed. Previously, he spent all his time travelling far and wide and as needed in order to inspect and declare apt (or otherwise) whatever installations might fall under the purview of his mandate. Today, this kind of urgent motoring about has been restricted to one half of the work month. The other fifty percent is dedicated to tasks the importance of which is inversely proportionate to their distance from head office - because the money has run out. The fuel budget for the second period is 5 euros a day per vehicle.

How's That All Work?

It's like this. My distant relative's company was reduced to paying taxes on income it did not earn (effectively, a tax increase) in order save the contractor from the ignominy of having to disburse the same on what he did. And through the magic financial bullet of cutting back on diesel fuel, the Junta is now able to continue paying my friend's sybling - but now to not do the job he was hired for. The government, of course, with all its skin in the game of appearing to save its populace from the horrors of poverty and backwardness, gets to brag about how many miracles it has bestowed on its otherwise beleagred citizens - until the money dries up. Which it will.

Any similarity the reader might note to the relationships that governments everywhere are currently establishing with their respective economies - especially thinking of their financial institutions - is purely intentional. The financial rewards are now to be found in having a marginally justifiable claim to poverty. And the political rewards are in being seen to be up to the task.

*The last time we entered the administrative offices of the department in question, in the depths of winter, we observed the following panorama. Eight paper-shuffler workstations (formerly referred to as desks) in a beautifully centrally heated room, each with the added comfort feature of an electric space heater. The number of occupied posts at that moment was one. The number of electric heaters functioning full blast? Seven. The department? The Agencia de Medio Ambiente. If the reader hasn't guessed already, that's the environmental agency.

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