By Don Quijones, Spain & Mexico, editor at WOLF STREET.
As Matt Taibbi once put it, Goldman Sachs, the world’s most powerful investment bank, is like “a great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money.” The way things are heading in Spain, however, the dreaded cephalopod may be on the verge of losing one of its tentacles.
In the wake of last week’s local and regional elections, which left many of Spain’s regional and local councils without a majority-led government, the twin specters of political instability and economic uncertainty have rekindled the cold fires of fear among domestic and international investors. As one contact from a Barcelona-based head-hunting agency told me, “things have come to a sudden standstill: no more phone calls, no more emails. Everybody’s just waiting.”
Of most concern is the stark prospect of Spain’s two biggest cities, Madrid and Barcelona, falling under the direct control of leftist mayors closely affiliated with the stridently anti-austerity party Podemos.
A Cosy Gathering
Last week, representatives of national and international banks, venture capital and private equity firms, and Madrid and London-based corporate and commercial law firms gathered at Madrid’s luxury 5-star Villamagna Hotal to survey the post-electoral landscape and discuss Spain’s future prospects as a destination for international investment. The event’s guests included executives of BNP Paribas, Deutsche Bank, JLL, BBVA, Bain Capital, and CVC Capital Partners.
According to El Confidencial, the general consensus was that most of the radical counter-reforms proposed by candidates affiliated with Podemos will prove next to impossible to implement. Given its “solid central administration, which faithfully honors the conditions set by European institutions… and its responsible politicians (no, seriously),” Spain should continue to attract international investment. In other words, the party can go on!
There was one caveat, though. Some of the more “controversial” operations undertaken by the PP-run Madrid council during the height of the country’s financial crisis may no longer be tenable. They include the sale, in the summer of 2013, of social housing projects to Goldman Sachs and Blackstone, the world’s largest private equity firm and now America’s biggest private landlord. The former, in partnership with the Spanish investment fund Azora, splashed €201 million on 3,000 social housing units while the latter, together with Spanish fund Magic Real Estate, acquired 1,860 public-owned apartments for the measly price of €128.5 million.
The Mother of All Gift Horses
As I reported in Round Two of the Global Financial Sector’s Takeover of Spain, the deal was the mother of all gift horses, a steal cooked up between Madrid and some of the world’s biggest banks, hedge funds and private equity firms – as usual, behind closed doors, under the cover of darkness and with zero public consultation:
When the Rajoy government was drawing up plans for Spain’s “bad bank”, the Institute of International Finance (IIF), one of the global financial sector’s biggest lobbying groups, dispatched Josef Ackerman, then president of Deutsche Bank, and Charles Dallara, the IIF’s managing director, to lend a helping hand with some of the trickier parts.
One result of said “collaboration” is that Madrid city council decided to sell off batches of social housing [to Goldman and Blackstone] at a much lower price than what it originally cost to build them, all in the name of reducing its debt exposure. As the Platform of Mortgage Victims (PAH) told El Diario, “the average price at which they’re selling the flats is 67,000 euros, adding up to a total of 201 million euros – whereas their initial construction cost 300 million euros”…
According to the socialist MP Antonio Fernández Gordillo, once the investment funds’ obligations have run their course, in roughly two and a half years’ time, the companies could offload each property for up to 187,000 euros a piece… Whatever happens, the bank and its illustrious clients can expect a healthy return on their initial outlay of 67,000 euros per flat — especially given that unlike Spanish residents, foreign investors like Goldman and Blackstone get to pay zero percent corporate income tax on their returns.
The Big Squeeze
It didn’t take long for Madrid’s new slumlords to begin squeezing their tenants until they went “pip.”
“Blackstone has started to change the terms of peoples’ contracts and they have already carried out evictions,” complained Santi Mas de Xaxas Faus, a Barcelona-based spokesman for the Platform for Mortgage Victims. As for Goldman, within months it had begun putting up for sale, at extortionate prices, some of its newly acquired flats – despite the fact that they still had tenants living inside!
“They know that at a certain point the protected rents will expire, and when that happens, they will throw the tenants out,” said Juan Carlos Monedero, a former member of Podemos’s executive committee, in an interview with Bloomberg. “They’re enriching people who already have more money than they know what to do with, and in turn they are forcing people to live on the streets.”
Perhaps not for much longer, though. If the former judge Manuela Carmona becomes Mayor of Madrid – as is looking increasingly likely – Goldman and Blackstone’s days as Spanish slumlords may well be numbered. One of Carmona’s main manifesto pledges is to put an immediate halt to sales of public housing as well as carry out an extensive audit of all past sales of social housing to so-called “vulture funds” – a broad category that one assumes would apply to the likes of Goldman and Blackstone.
On this particular proposal, as well as her pledge to put a stop to foreclosures in Madrid, Carmona has the overwhelming support of the Madrid populace – no surprise given that Spain is home to some of the most criminally unjust foreclosure laws in the so-called civilized world [read: In its Desperation, Scandal-Riddled Spanish Government Criminalizes Solidarity Among Citizens]. For Goldman and Blackstone, losing a few hundred million euros worth of run-of-the-mill Spanish real estate is hardly likely to put a dent in their respective global property empires. And if they are ultimately dispossessed of their Madrid-based investments, one assumes they will be generously recompensed by Spanish taxpayers.
However, it’s at the symbolic level that Carmona’s intervention would really matter. At the very least it would send a rare signal to the likes of Goldman and Blackstone that that they cannot have absolutely everything they desire – at least not all the time! For the people of Madrid, it will be a reminder that their voice might actually count for something – at least at the local level! As for Goldman, an institution that has craftily transformed crisis-ridden Europe into its own financial fiefdom, losing its operations in Madrid will be like losing a small tentacle — painful but far from fatal, and soon to be replaced by growing a new one. By Don Quijones, Raging Bull-Shit.
After the elections in Spain, panic and fear are beginning to take root in the hallowed halls of government and corporate power. Read… It’s Getting Ugly in Spain