Former IMF Managing Director Says Some Spanish Bank Mergers Could Fail

rodrigo rato

Photo: elEconomista

This article originally appeared at elEconomista.es, an online Spanish business news website. Click here for the original version of this article, in Spanish.Bankia president and former International Monetary Fund managing director Rodrigo Rato has warned that some mergers between the cajas (small community banks in Spain) will not be “viable and could fail,” as these entities go through a new process of consolidation that requires higher capital levels.

Mr. Rato noted that past experiences show that some of these processes could fail, as just a few days after the creation of Banco Base (linked to the CAM, Cajastur and the Cajas of Extremadura and Cantabria), it was derailed.

Speaking at the “XVIII Meeting of the Financial Sector” organised by Deloitte, Mr. Rato predicted that the size of the institutions would continue to increase, not because they were forced by the circumstances, but because the crisis had accelerated the process.

The former IMF managing director also said he was very “worried” about current international financial regulation because it ignored that the retail banking business was not the origin of the crisis. He also pointed out that Spanish banks’ main focus of business is retail.

Related to Bankia, the new Spanish bank created after the Caja Madrid-led merger that is now immersed in its upcoming IPO, the former Minister of Economy of Spain said the market appreciated the importance of participating in such a project and that doing so “now” suggested that there would be more similar opportunities in the short term.

Mr. Rato explained that the cajas were heading towards a great transformation that included the concentration of institutions, offices and a decrease in write-downs after the credit expansion experienced “since 2004.”

However, he also stressed that all these changes, which in some cases would lead to the transformation of the cajas into banks retailers, must maintain certain characteristics, such as social commitment, valued for their utility or customer intimacy.

This article was written originally in Spanish and edited in English by Jose Luis de Haro and Julie Zeveloff.

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