Alfredo Saenz, CEO of Banco Santander is one of those bankers who you would trust your money because you really feel you can rely on him to give you your money back and even having earned an interest. At the conference organised on May 12th by Esade Business School, I found him self-confident, showing his composure, speaking in a really straightforward and clear way at the end of his talk.
To give you an example of what I mean:
“Banks are not ONG’s and if they forecast problems to get their money back, they do not lend that money. The same goes for entrepreneurs; if there are no guarantees, they do not lend either.”
Due to the crisis, productivity has risen. This has happened because the least productive and least skilled members of the workforce have left the labour market. What has been lost in Spain so far have just been “junk jobs”.
At the first stage of his talk, he went over the reasons which led to the current crisis. He talked about policies such as the one which applied low interest rates, used by western economies even in periods when there was an economic growth. According to him, this is precisely what led to an excessive settling down of finance, both in the public and in the private sector. Spain, the UK or the USA –among others, were spending more than they could afford, while China and Japan were financing this spending. This trend finally burst because these countries got too deep into debt and this debt was not guaranteed by the value of the assets that neither the public nor the private sector of them really had. One of the triggers which caused this situation was the high risk subprime mortgages issue.
He then talked about the false myths which surrounded banks during this crisis:
1st Myth: Banks do not want to lend. According to what he clearly and categorically stated, this is just false. Less money is being lent because there less reliable and solvent demand. There are fewer opportunities for investment and therefore less financing is needed. Profitability of companies is very low and therefore the limit for return of these is also lower.
2nd Myth: What we need in order to leave the crisis behind is more credit and less leverage. This is totally false; what the private sector needs is less credit. There has been oversizing in terms of debt and productive ability for companies. These two have to reduce their leverage drastically and get back on a sound footing.
3rd Myth: Banks must be obliged to provide more loans. This is very dangerous because banks do not have any incentive to lend. He then insisted on the idea of the amount of existing credits, many of which do not have any capacity of return, which means they are not solvent.
4th Myth: Banks take advantage of the situation and harden conditions for lending. This is just not like that: market conditions show that, for wholesaler, it is becoming more and more difficult every day.
With regards to the financial sector, he added that, in order to get some life into it, we need to have the necessary environment, in terms of net cash and in terms of better conditions for wholesalers. We also need balances to be healthier and we need them to get better ratings.
We also must avoid “Crowding Out”, for the public sector cannot compete with the private one in terms of financing.
Regulations must be favourable. If a bank does not fulfil its promises and is to go bankrupt, it will just have to put up with it and go bankrupt. The Government must not help it. Now; there must be some kind of system so a problematic bank can be “scrapped” in an organised way.
Finally, he described the Santander strategy; a model thought around its bank branches, which work with technological efficiency in all its operations. It is based upon a solid balance and an active management of the business portfolio. All of this should be intended to keep a geographical and product diversity in all markets they can get an important amount of clients focused on commercial banking. They will also divest in insurance companies, which will now become mere distributors. He finally told us to keep an eye on the US because that was to be a priority market for them in the near future.