The clandestine role of the Spanish government in a run on deposits that drained €29 billion from Catalan banks.
By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET.
Just over a year has passed since over two million people in Catalonia voted in a banned referendum to leave Spain. On that day, the separatists were given a brutal lesson in the raw power of state violence. Days later, they were given another harsh lesson, this time in the fickleness of money. Within days of holding the vote, which was brutally suppressed but not prevented by Spanish police, Spain’s north eastern region was forced to watch as one after another of its brand names moved their headquarters, at least on paper, to other parts of Spain.
Among the first companies to up sticks were Catalonia’s two largest banks, Caixabank and Banco Sabadell, which feared being cut off from European Central Bank funding in the event, albeit unlikely, of Catalonian secession. That would have meant no more virtually interest-free loans from the ECB or access to Europe’s repo markets. In other words, a death sentence, as Caixabank’s then president Isidro Faine recently admitted.
The banks were also suffering a gathering run on deposits as customers shifted 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 the banks’ Catalan roots. In little more than a week, the two banks lost tens of billions of euros in deposits.
But what is only now becoming clear is just how central a role the Spanish government in Madrid was playing in fomenting this massive exodus of funds. The Catalan newspaper Ara has revealed that large state-owned companies such as public broadcaster RTVE, rail infrastructure manager Adif, freight and passenger train operator RENFE and Spanish ports, on the behest of Spain’s central government, raided their own accounts in Catalonia during the frenzied days immediately after the referendum.
In one day alone, the state-owned companies withdrew €2 billion from Banco Sabadell. The presidents of these state-owned companies apparently told the bank’s CEO, Jaume Guardiola, that they had received orders to trigger a run on deposits. As much as a third of all the money that left Catalonia during those first days of October belonged to institutions or companies controlled by the State.
The covert ploy worked like a charm. In the short space of just a few days Banco Sabadell suffered a deposit outflow of €12 billion, while Caixabank lost almost double that, according to Ara.
Another senior executive at Banco Sabadell allegedly asked Spain’s then-Economy Minister Luis de Guindos about the apparent cause of the bank run, to which he received the response: “Have you changed your company address yet?” When the executive answered in the affirmative, the minister said there was no longer any reason to worry. Within hours, the deposits of the state-owned firms were back in their accounts.
As soon as Sabadell publicly announced its change of address, 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 stock-market routs as 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. On the Friday morning after the independence vote, 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 stated otherwise.
Within days, the trickle of companies out of Catalonia had turned into a deluge. The moves, while strictly on paper — something that was not reported nearly as clearly as it should have been — helped change the scales somewhat in Madrid’s information war with Catalonia. Thanks to this strategy, Madrid succeeded in dampening support for Catalan independence among more moderate separatists.
Until the dark days of October 2017, many of those people had been led by pro-independence politicians into believing that separating from Spain would be a painless procedure with limited, if any, economic consequences for either Catalonia or Spain. The exodus of over 3,500 Catalan companies in the last 12 months, to this day almost purely on paper, and the run on deposits that was also partly engineered by the central government in Madrid belie that assertion.
Today, one year on, some of that money has still not returned. Since late Spring of 2017, when things began heating up, the region has lost over €29 billion in deposits, according to the Spanish financial daily Expansión. Before last year’s constitutional crisis, Catalonia held around 15% of Spain’s bank deposits; now, it holds just 13%.
Where did all that money go? Some of it went abroad, but much of it went exactly where Spain’s central government wanted it to go: Madrid, which is now home to almost a third of the country’s deposit base. By Don Quijones.
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