Banking and foreign consultants make their August at the expense of the Spanish financial crisis

The crisis and restructuring of the Spanish financial system are not only reducing the number and size of those entities that have had to receive public support. It is also making gold dozens of international investment banks and consultancies to which both the Government and the FROB (Banking Orderly Restructuring Fund) are awarding millionaire contracts.

For the valuation of the financial system, more than 400 auditors were hired “doing tasks of the inspectors of the Bank of Spain” This custom had already been practiced since the beginning of the crisis. Thus, for example, in May 2011 (with the previous Government) the FROB chose the KPMG and BDO consultants to assess the entities that were then under public control (Unnim, CAM, and Novagalicia). The resource with public money to “independent” experts, however, has exploded with the arrival of the new Executive and Minister Luis de Guindos, designer of the reform of the Spanish financial sector. He himself comes from one of the main consulting firms (PriceWaterhouseCoopers, PwC).

The main subcontracts (carried out in a general way without public tender) have been those related to the solvency tests of the Spanish banking sector approved after the nationalization of BFA-Bankia. In total, the Bank of Spain (commissioned by the Ministry of Economy) disbursed 31.39 million euros for a “global resistance test” to Spanish banks and two assessments of its credit portfolio (the set of loans https://www.paydaynow.net/ granted by the entities ).

This striptease to “solve the doubts about the solvency” of banks and Spanish boxes was, according to official data, two contracts of more than 10.5 million euros for the US consultant Oliver Wyman and another 696.200 euros for the German firm Roland Berger. In addition, the services of the four large international auditors (PwC, KPMG, Deloitte and Ernst & Young) were counted twice, together with the advice of the Boston Consulting Group. In total, more than 400 auditors performing “tasks of the inspectors”, as reported by the Association of Inspectors of the Bank of Spain.

Almost parallel to the valuation of Spanish banks, the design of Sareb (the bad bank) was subcontracted, the entity in charge of buying the toxic assets held by the financial system. The Spanish authorities were advised by the international firm specializing in solving problems Alvarez & Marsal, which in turn claimed the services of the British consultancy Nomura and the Cuatrecasas law firm. The outsourcing of this service has cost more than 2 million public euros, according to El Confidencial.

What to do with the nationalized?

Since the request to rescue the Spanish financial system in Brussels in June 2012, there have been dozens of new hires to consultancies, law firms, and investment banks to analyze, audit and resolve the future of nationalized entities. Thus, in the case of BFA-Bankia, its maximum shareholder (the FROB) counted in May 2012 with the services of three investment banks ( Rothschild, HSBC, and Credit Agricole ) to evaluate in detail the bank chaired by José Ignacio Goirigolzarri. This analysis came to complete the due diligence (global analysis) carried out by the firm Ernst & Young just a few weeks before.

The bad bank entrusted a consortium of 13 firms with the elaboration of their due diligence. At the end of 2012, the nationalized bank again pulled the checkbook to hire three other firms (in this case Nomura, Citigroup and BDO) with the task of knowing the real value of BFA-Bankia. This operation was fundamental to know the final amount of public aid allocated to the entity. And also in January, he used a subcontractor (in this case KPMG) to manage the arbitration process for the preferred shares.

Not everything ends in Bankia. In April 2012, the FROB (public body with private legal personality) had chosen the US bank Citigroup to auction and sell another nationalized entity: CatalunyaCaixa (CX). The operation did not come to fruition and subsequently, Mediobanca (which in turn was the one chosen to sell Banco Gallego) was also hired for this work, also without success.

Both the Catalan box and Novagalicia remain unsold, and a report commissioned to McKinsey consultancy (for which billed 350,000 euros to the FROB) has concluded that the sale has to be carried out as soon as possible, given the risk of further deterioration in both entities. Thus, at the beginning of July, the hiring of the investment bank BNP Paribas was announced to proceed with the sale of the Galician case (work for which it will receive 700,000 euros) before the end of the year. Last Thursday it was also known that the firm N + 1 Corporate Finance will be the one that will analyze and “eventually” sell Catalunya Banc.

Last February, the Management Company of Real Estate Assets from Banking Restructuring (Sareb) awarded its particular due diligence to a consortium of 13 national and international firms. The bad bank, privately owned but with public risk (its debt is guaranteed by the State), has hired a pack led by the law firm Clifford Chance that will encompass six law firms, five real estate appraisers, KPMG and IBM. The private law firms are another of the sectors that make their particular August in this financial crisis. Thus, for example, the FROB has left the firm Simmons & Simmons legal representation in lawsuits such as Bankia.

A “different” information is sought

In 2010, spending on external services was 886,000 euros; in 2011 it has already amounted to more than 5 million If there is already a banking supervisory team and dozens of economists and lawyers from the State, why does the Government resort to these million-dollar cost services? “They are hired because the market needs experts who give a neutral assessment,” official sources explain to this newspaper. Is it due to the loss of prestige of the official supervisors? No, in the opinion of the analysts consulted. “I think it is normal and logical that specialized investment banks are used to issue a rating from a bank since they are entities with experience in that work,” says Joaquín Maudos, from the University of Valencia.

For this professor of Fundamentals of Economic Analysis, when resorting to international experts “independence in the assessment is guaranteed”. Although the Bank of Spain has trained personnel to perform these tasks, “what is sought in this type of information is something different,” he says.

“Until before the crisis, the Bank of Spain was one of the most valued central banks in Europe, but after the outbreak of the crisis, it was essential that the supervision is carried out by external agents,” a financial analyst comments to this newspaper. who thinks that these “are very expensive exercises that compensate if they bring the required result: credibility “.

The problem, as highlighted by financial sources consulted for 20 minutes, is that these contracts often lack transparency. On the one hand, employees of the FROB and the Bank of Spain are subject to a strict duty of secrecy. On the other hand, the contests and auctions to award these tasks are not published in any official bulletin or on the websites of said institutions. Other minor awards do go through public processes.

The FROB does publish an annual report in which it specifies the total expenditure on “external professional services”, although the one corresponding to the year 2012 has not yet been presented, in which the bulk of the orders have been carried out. In 2011, total expenditure on outsourcing by independent experts involved an expense of 5.1 million euros, compared to 886,000 euros in 2010.