Can Bumble Bees Fly?

Courtesy of the indispensable Cajas y Bancos... the English-language investor roadshow pdf of a soon to be created (from the thought to be irrepairably fragmented savings bank sector) domestic banking giant. We refer to the merger of Caja Madrid, Bancaja and several small regionals.

Aside from the observations that the IPS creates the largest domestic institution both by assets and deposits and second in terms of loans to the private sector (and ignoring the obvious that the whole thing might have more in common with a post-traumatic stress syndrome self-help group than a financial intermediary), a few other points bear bringing to the reader's attention.

Possibly in order of importance:

1). The document appears to have been written by a native English-speaker. Great leap forward! Even the Ministry of Finance of this paradise on earth couldn't bring itself to plumb such depths of humiliation in last February's Spain-is-solvent London roadshow;

2). The overriding structure of this new institution - to which all profits, losses and measures of solvency and risk will be attributed - is a bank, not a caja de ahorros. This is to say that it is a for-profit company with an ownership structure and not an NGO. Over some term, this opens the door to capitalization in the equity markets, a route prohibited until now;

3). The 4.5 billion euro re-capitalization funds from the FROB take the form of a purchase of non-voting preferred shares with a yield ascending from 7.75%. Redemption is in five years (extendible by two). Failure to redeem converts them to common equity, with voting rights, at face value - a route which the Banco de España can take, at will, at any point in time it deems it appropriate. In the event that this asset comes into existence, it can also be disposed of as the BE sees fit, by the way;

4). At this point in time, institutions representing 87% of the assets of the caja system are merging or entering into IPS's with others of their ilk. This figure des not include the 1.4% of total assets attributed to the seized - and for sale even to banks and foreigners - CajaSur.

We're sure the reader will be able to find more than this light cherry-picking has uncovered.

Other interesting news with respect to the generalized structural inadequacy/political gridlock argument that is the mainstay of the justification for a whole array of predictions concerning the fate of Spain (and the EU, in general) is that the congress yesterday passed the PSOE's labour market reform lite. The bill is insufficient and the vote was won because all but eight opponents abstained. The process is lumpy and opaque, but the legislation got through with those who needed to save face also achieving their goal.

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