This week there has been much press about the Caja’s in Spain.
Comments have come from government, analysts and the Chief Executive of Santander. All however are saying the same thing. The Caja’s must recognize and take action to bolster their liquidity and deal with their growing level of property ownership as their defaults on loans grow.
Caja’s equate to half of the financial service service providers in Spain and are unlisted businesses closest in terms of UK to building societies. Unlike building societies however which are owned by their members Caja’s are owned and run in general by political parties or regional political bodies.
Caja’s profits and policies are therefore used by the owners to enhance and finance their political agendas either at a local or national level. This means risk decisions and pricing are skewed toward political rather than business aims. Lending policy may be directed to certain groups or certain areas of funding completely at odds with what might be commercially viable but in line with gaining votes from sectors the local politicians either support or need in order to stay in power. When everything was booming no-one questioned this activity but in today’s environment the use of Caja’s to finance political agendas has become a serious problem.
