Money is fickle and fearful.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Within 48 hours this week, Catalonia, Spain’s largest regional economy, lost three of its seven biggest homegrown multinational corporations and several large national companies — if only on paper — to cities in other regions of Spain.
The first important company to “leave” since Sunday’s referendum was mid-sized pharmaceutical company Oryzon Genomics SA, which announced on Wednesday that it was departing Catalonia for Madrid. The same path has been traveled recently by firms like Derby Hotels, Unico Hotels, WPP and Schibsted.
But it wasn’t until Banc Sabadell, Spain’s fifth largest bank, announced that it was changing its registered company address to Alicante, a provincial city on Spain’s south-eastern coast, that the threat of a corporate exodus from Catalonia began to be taken seriously.
Banc Sabadell is as Catalan as the town that bears its name, but its management has been warning for years that it would move out of the region in the event of Catalan independence. That threat wasn’t taken seriously until Thursday.
But the move is only on paper — something that is not being reported nearly as clearly as it should be in much of the Spanish and foreign press. For the moment Sabadell is not moving its head office, nor is it relocating any of its workers. All it has done is change its legal address, and what’s more with minimal fiscal fanfare — in most of Spain (with the exception of the Basque Country and Navarre), all corporate tax is paid into the central coffers.
There are three main reasons for Sabadell’s (administrative) move:
- Within Spain the Catalan market only represents 26% of Sabadell’s operations today, whereas the rest of the Spanish market accounts for 74%. The bank also has operations in the UK and the US. But its biggest market is the Spanish mainland (outside Catalonia) and if independence occurs, it could end up being stranded from it.
- As a Catalan-based (albeit Spanish-registered) bank, it was beginning to suffer a run on deposits as customers began moving their money to other Spanish banks, either because they were afraid of what could happen to their funds in the event of independence or as punishment for its Catalan connection. Now, ironically, it could face the wrath of the other side of the divide.
- Most importantly, if Catalonia declares independence, its two main banks (Sabadell and Caixabank) could be cut off from European Central Bank funding, though it would be exceedingly difficult to pull off as they also have substantial operations in the rest of Spain. And if that were to happen, it would mean no more virtually interest-free loans from the ECB or access to Europe’s repo markets. In other words, a death sentence.
As soon as Sabadell announced its change of address on Thursday, the market rewarded it with a nice 5% surge in its share price. The message was clear to the rest of Catalonia’s listed companies, many of which had suffered similar routs to Sabadell: get out of Dodge (or at least pretend to on paper) and you’ll recover at least some of your losses.
All they needed was a little creative help from Spain’s central government in Madrid. On Friday morning the Rajoy administration passed a law making it possible for Spanish companies to move their registered address to other regions of the country in just one business day and without having to consult their shareholders, even if their company charters state otherwise.
In Spain it’s incredible how fast the wheels of legislation and justice can turn when the government and major corporations need them to, and how slowly they turn when senior representatives of the government or corporations suddenly find themselves on the wrong side of the law.
Within hours of the passage of the new law, two of Catalonia’s most emblematic companies had used it to change their registered address:
- Caixabank, Spain’s third largest lender opted for Spain’s third largest city, Valencia, as its new official (but not yet physical) address. Its company charter states that moving the corporate address can take up to a month to complete and the decision must have the approval of the bank’s shareholders. But thanks to Madrid’s change in the law, that’s no longer necessary.
- Gas Natural, one of Spain’s biggest energy companies, chose Madrid as its registered address. Like Sabadell and Caixabank, it won’t be moving even a paper clip to its new registered office as long as the Catalan government doesn’t follow through on its threat to declare independence. Unlike Sabadell and Caixabank, it is not a financial institution, so it’s not effectively backstopped by the ECB, but it is a major beneficiary of the ECB’s corporate bond buying program.
None of these moves really change anything of great substance, but they have changed the scales somewhat in Madrid’s information war with Catalonia, a war Madrid was desperately losing until Thursday. With this strategy, Madrid might have succeeded in dampening support for Catalan independence among more moderate separatists — especially if they’ve been misled into believing that the companies are actually upping sticks.
In reality, the companies going nowhere — at least not for now. Nonetheless, the last two days of frenetic developments are a lesson about the power of money that Madrid and Corporate Spain are trying to teach Catalans, that their strive for independence will come with pain, sacrifice, and disruption, and that money can be extremely fickle and fearful, that it can leave without notice, especially when political turmoil is on the rise. By Don Quijones.
Spain’s biggest political crisis of a generation is finally beginning to take its toll on the country’s financial markets. Money is on the move. Read… Catalonia Chaos Begins to Squeeze Spain’s Financial Markets