The governor of the Bank of Spain keeps defending how he has managed the cajas. With no hesitation or embarassment, Ordóñez afirms that the caja reforms are going well, albeit a bit slow. But yesterday the IMF began refuting this claim.
The IMF declared that the weakest banks in Spain should be restructured through immediate interventions. Just what we have not done. It is logical that support was conceded to viable entities.
But here the governor has insisted on defending the strength of our banking system and assuring that we are viable, until he explained that Caja Castilla La Mancha wasn't involvent on the very same day that interventions were enacted to help the bank.
Several times he denied information about current economic difficulties that were published in elEconomista. Right now, the white glove test for the reform should to verify if credit is back and if there are outside investors ready to get into the cajas.
Investors and credit are few unless investors can pay half of book value for the best of the cajas. If not, then the reform will remain at a standstill. We have obsessed over capital requirements and solvency, but that point of view is deceiving and like putting new paint on an old car.
Those with good executives (Spanish managers who complete complex paperwork and procedures involved in business transactions) and a strong capacity for generating benefits will be the only viable organizations, becuase if the car is truly old, this will end up eating capital.
But if the old car is improved by a series of strong results, someone will want to buy it. Intervening and discriminating between good and bad banks are practices that must be put in place. From not doing this, the investor can't discriminate and will think that everything is equally bad.
Edited in English by Brandon Dyches and Jose L. De Haro (joseluisdeharo@eleconomista.es)
