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The value of shareholders

Grauniad editorial about Spanish bank bailout. In the comments:

What I find amazing in all these bank bailouts is that the creditors who lent money to badly-run banks, and the idiot management that ran them into the ground, both get away scot free. Instead, taxpayers have to pick up the tab.

It would make other managers think twice if when there was a bailout at least the incumbent board and managers got properly sacked and disgraced.

Well, the managers of the cajas have all been sacked.

But more importantly, there isn\’t anyone other than the taxpayers to take the hit. You see, the cajas were mutuals (and often charitable foundations as well). Thus there just aren\’t any shareholders to take the loss or to top up the capital.

There is actually a value to these shareholders you see? Sure, they get the profits in the good times. They also take that first chunk of losses in the bad. Yes, even at RBS and Lloyds, while the loss isn\’t total it has certainly been severe.

And the problem in Spain has been at least partly that there just weren\’t any people in that situation.

7 thoughts on “The value of shareholders”

  1. Indeed. The total value of RBS shares not owned by the UK government is now about gbp3bn, compared to gbp120bn in 2007. A 97% haircut is pretty damn significant, I reckon.

  2. Bankia has shareholders. 45% of its shares are now owned by the Spanish government, but the rest are private shareholdings.

    In fact I think all the merged entities have shareholders and are technically banks rather than cajas – it’s only the “original” cajas that don’t. The most amusing one was Caja de Ahorros del Mediterraneo, which was floated in 2008 just as the property bubble burst, promptly went bust, was considered for ANOTHER merger in 2011 then finally sold to Banco Sabadell for 1 Euro. “Look on my works, ye mighty…..”

  3. Bankia indeed managed an IPO quite recently, when it was already broke. The shareholders deserve to lose every penny.

  4. @ Oxonymous

    Until Felipe Gonzalez, as President of the Spanish Government (remember we also have a monarch) opened the management of cajas to (re)tired politicians and union members, they were relatively boring local institutions lending for local SME and housing mortgages with good up-front deposits and sound banking practices.

    They were safe and boring.

    Guess what happened when the politicians got their hands on the ‘doobers’ ? They lent where they shouldn’t have, for all the wrong reasons.

    I read the blurb for the Cambridge and County and I am thinking, are they really going to lend to businesses that cannot make a case for being able to pay back the loan to a commercial bank?

    Right now every Tom, D. and H. thinks they can do what professional bankers can’t, and make money. Bank(er)s are evil and scum and stupid. They only run to get unethical bonuses for a couple of gits at the top. So, logically, anybody honest could do better.

    Credit flowing sounds great, but just who is borrowing? I’m glad they haven’t got their hands on my pension fund.

    And if I ‘m wrong? I will admit it and offer my congratulations. But don’t hold your breath waiting.

  5. If I recall correctly, when the banks won’t lend because of the risk, someone else willing to lend will build their risk assessment into the interest rates charged. So rather than a 15% loan, you end up with a 70% loan.
    Or higher.

  6. H

    No they don’t. They were sold a pup. They were systematically lied to by management and government. The Bankia IPO was completely immoral and may have been actually fraudulent. Spain’s equivalent of the CPS is currently investigating whether “crimes have been committed”, and investors are also collecting funds together to enable them to proceed with private prosecution. I await the inevitable court cases with considerable interest.

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