This article originally appeared at elEconomista.es, an online Spanish business news website. Click here for the original version of this article, in Spanish.
It seems that some US private equity funds and hedge funds are getting ready to invest in troubled Spanish community banks, also known as cajas. As already reported by the Spanish media, George Soros and John Paulson met with some representatives to discuss strategic investments after some of the cajas decided to go public.
That said, not everybody feels the same about these kind of investments, especially at a time where Spain’s financial system is under a huge amount of pressure from international forces to finally come clean about their exposure to the troubled housing market in the country.
A couple of weeks ago, the Bank of Spain said that banks and cajas would need a total of 15.1 billion euros in extra capital to confront potential losses from the mortgage and construction sector in the country.
Also, the cajas are now undergoing a deep reform, including the consolidation and some merging between certain entities, so it is unclear what will happen to the controlling power that some local governments have in community banks if they finally decide to go public.
For Karim Khairallah, managing director of Oaktree Capital, this reform is still “completely unclear” while nobody knows “how much of it will be implemented.”
“Who’s going to be interested in a bank that is currently undergoing a huge restructuring process?” he asked.
While Oaktree Capital is one of the main creditors for major Spanish companies like Panrico and Campofrio, its managing director still recognises that the economic situation in the country “is horrible.”
In his opinion, there has been a lot of talk from the government about labour and other important reforms, but “we still haven’t see any results yet.”
When asked whether any U.S. private equity funds would be interested in investing in any of the cajas, Khairallah said that if they went ahead with any capital injection, “they’re going to ask for some controlling share in the banks, and that would create some friction with local governments that until now had control over the cajas.”
Khairallah´s position is not far from Moody´s view. The rating agency just downgraded 30 banks in Spain today.