Three years ago, when Banco Santander merged with Banco Central Hispano and Banco Bilbao Vizcaya merged with Argentaria to create the two largest banks in Spain, the new BBVA’s investor relations received more plaudits than BSCH’s – now re-baptized as SCH. Today, however, the situation has completely reversed.
Industry specialists deemed BBVA’s merger to be more effective and better explained than its competitor’s, and the integration was completed more quickly. ‘BBVA intended from the beginning to combine the staff working in both banks and to create a harmonized banking culture, whereas its rival, SCH, kept the rivalry and competitiveness between employees of its two companies going,’ explains a Madrid-based investment consultant.
Indeed, BBV’s chairman, Emilio Ybarra, and Argentaria’s chairman, Francisco González, declared they agreed ‘with total consensus’ to act as joint chairmen of the bank until 2002. At that point, Ybarra would step down, leaving González as sole chairman. Until that date they would both have equal access to the board of directors of the new mega-bank, headquartered in Bilbao, home of the former BBV. The decision to stay in its Basque home (Argentaria was based in Madrid) reflected the fact that BBV was the largest and oldest of the two banks.
Botin, El Banquero
Meanwhile Banco Santander Central Hispano, Spain’s largest bank, was going through a series of family fights for control. Banco Santander’s chairman, Emilio Botín, and Central Hispano’s José María Amusátegui came from quite different cultures; and though they shared the presidency of the combined bank until August 2001, continuous friction led Amusátegui to leave seven months earlier than planned at the time of the merger in January 1999. Now Botín is the hombre fuerte, or strong man, of the bank. Nicknamed El Banquero, the banker, since taking control Botín has made it clear that he considers himself to be his own best advisor. For instance, he replaced the name BSCH, which he disliked so much, with plain Santander Central Hispano, and the new logo is in red, his favorite color.
‘Botín has made the bank’s strategy very plain, launching very clear messages to inform shareholders and analysts,’ remarks Eugenio Martínez Bravo, chief executive officer at financial PR firm Gavin Anderson & Company in Madrid.
Martínez offers some examples of Botín’s vision, including his desire to get rid of the bank’s portfolio of industrial holdings and his search for a European partner. In pursuit of these goals, Botín has sold SCH’s participation in two building companies, Vallehermoso and Dragados, bringing huge benefits. ‘He is the only one who knows what he is going to do with the bank,’ claims one IR consultant who is critical of his approach. ‘That may confuse shareholders.’ In response, Isabela García Mora, head of IR at SCH, argues that the IR department is always aware of the bank’s strategies. ‘I’m not going to argue against the accusations of personalisme [cult of personality] that have appeared in the newspapers,’ she says.
SCH also takes a strong line on Argentina: ‘With the current financial, economic and social crisis in Argentina, SCH has declared that it’s going to wait for three months. If, after this period, the situation remains the same, it will make a decision then. But for the moment the bank is still there, coping with the situation. BBVA, on the other hand, doesn’t explain its strategy within the South American country at all,’ says Gavin Anderson’s Martínez.
One analyst, who declines to be identified, confirms this positive view on SCH: ‘You ask BBVA about their strategy in Argentina and they evade the question, not because they don’t want to tell us, but because they don’t know themselves what they are doing. They don’t know whether they are staying in the country or quitting it.’
Secrecy, scandal & speculation
What’s behind the switch by BBVA from clear strategies to difficulty explaining itself? It may be the various financial scandals the bank is facing. Indeed, many observers have suggested ‘the IR department has been left out of the loop,’ remarks Jacinto Soler Matutes, head of research at Barcelona-based law firm Soler-Padró.
This spring the Bank of Spain launched an investigation into a series of secret offshore funds accounting for some E225 mn. The former BBV starting using these funds in 1987 to buy Argentaria shares and arrange pensions for BBV executives. Current chairman Francisco González asked most of the executives under criminal investigation – which was now being undertaken by charismatic judge Baltasar Garzón – to give up their boardroom seats. He immediately named new independent directors and tried to distance himself from any accusations of money laundering, claiming he knew nothing about the secret funds and blaming former co-chairman Ybarra.
‘With these moves, González is trying to break any links with the past and load the fault onto the former executives to reposition the bank in the market. He is trying to put the Ybarra period behind him and to start the FG [Francisco González] phase,’ argues Martínez, adding, ‘This is the only thing he can do to rebuild credibility.’
But it’s no easy task. One of the biggest challenges is to stop press speculation further damaging the bank’s already injured image. ‘It has been said that the money could have been used for payments to ETA (the Basque terrorist group),’ says one Barcelona IR consultant, suggesting the bank’s clean-up operation is a maneuver to remove political and economic influence from the Basque Country. He adds : ‘The reality is that the small fish [Argentaria] has eaten the big one [BBV]; the president of the smaller entity is now chairing the bank and has got rid of some of the traditional Basque managers who had been doing an excellent job for ages.’
The scandal has of course complicated the task for BBVA’s IROs, who have had to face a barrage of questions from investors and analysts. But Alvaro Vázquez de la Puerta, deputy CFO and general director of IR at the bank, is pretty relaxed about the impact on the financial community: ‘The professional investor places less importance on [the financial scandals] than the local media does.’ Vázquez argues that institutional investors can see the bank is financially solid and the current situation hasn’t affected the numbers. As a result, they are not unduly concerned about what some former executives may or may not have done in the past.
However, a Madrid-based analyst argues that the bank is obfuscating: ‘We have total access to the bank’s IR department but the degree of information they release is questionable. Everything we know about the secret funds we know from the press.’ For his part, Vázquez counters, ‘Ninety percent of what the press has said is false; what is right is what we have disclosed.’
Indeed, BBVA issued a press release to tell shareholders and others about the existence of the secret accounts a few months ago. And, according to one shareholder contacted by Investor Relations magazine, the bank sent a letter to every shareholder and employee of the bank telling them what had happened with these funds and what the bank was doing about it. The letter also recommended they ignore everything published in the press. Blanca San Roman at financial PR firm Financial Dynamics in Madrid applauds this measure: ‘When there is a problem, you have to attack it directly; you have to communicate the truth to your shareholders and avoid defending yourself against what others say.’
However, the overall coordination of the information hasn’t been very successful, judging by the thousands of headlines appearing in the newspapers, say Spanish IR counselors. ‘They should have created a crisis committee and designated spokespersons to control the information,’ says San Roman. Instead, ‘Lots of people from inside BBVA have expressed their opinion and that has created more rumors.’
‘They need to turn attention away from the problem and divert it towards the actual business,’ argues Martínez at Gavin Anderson.
‘They need to create feature articles in financial magazines in which they can explain their business strategy. They need to make sure investors read them and get interested in the business, forgetting the scandal,’ he advises.
Governance goals
One positive byproduct of the scandal is that BBVA will improve its corporate governance and transparency standards to help rebuild investor confidence. Francisco González says the new governance code will be an example for other European companies that are suffering the same problem as Spain, which is the concentration of economic power in a few hands and close relationships between financial institutions and large industrial groups. Indeed, one clear example is SCH. Emilio Botín has been accused of nepotism because his daughter, Ana Patricia Botín, has been named chair of a subsidiary, Banesto. Botín senior’s son and brother are also non-executives directors on SCH’s board.
González’s idea is to create boardrooms with genuinely independent directors. ‘At the moment most companies say they have independent directors, but if you do some research you discover that in one way or another, they do in fact have links,’ says Jacinto Soler at Soler-Padró. ‘It’s very difficult to change the power structure, especially in countries without very well developed financial markets such as Spain, Portugal or Italy,’ he adds.
Nevertheless, the intention is good and may help reduce these endemic problems of concentration of power and an absence of independent directors. Such problems are also prevalent in countries like Germany and France. So, is Spain different? No, not really.
Will it change? Only time will tell, but recent history suggests that the revelation of scandal is one of the most effective catalysts for changing the way companies are run.