Thomas White Global Investing
Spain Stamp
June 8, 2012
A Postcard from Europe
Spain: An iPad for Your Term Deposit

Customers are kings for Spanish banks

Spaniards are busy pulling out their money from banks considered too weak to survive a crisis in the Euro-zone. To keep the depositors happy, the country’s banks are offering various goodies, from coffee machines to iPads.

Are you one of those customers complaining about the meager interest rates that the neighborhood bank pays on a term deposit? Well, here is some news that at first glance may make you a bit envious. Banks in Spain are gifting iPad and flat-screen televisions to customers who agree to park their money with them and open accounts.

Some banks are offering a foreign language course to customers in return for a term deposit, others, like Cajamar Caja Rural, a bank based in the Spanish coastal city of Almeria, are giving customers espresso machines in exchange for long-term deposits.

The Spanish regional bank, CatalunyaCaixa, which has traditionally sponsored the country’s motorcycle races, has been one of the most generous to customers. It has promised some customers that it will pay a higher interest rate everytime the local motorcycle racing sensation, Marc Marquez, wins a race. Customers willing to bet on Marc Marquez’s racing prowess have a chance to win three times as much in interest on term deposits compared to other banks.

In short, banking customers are being treated like kings and queens in Spain these days.

Think these Spanish savers are lucky? Think again. In reality, Spaniards at best can be described as being nervous about their country’s banks.

A housing boom that started in the early 2000’s has left many Spanish banks saddled with bad real estate loans. The global financial credit crisis of 2008 dealt a deadly blow to a number of Spanish banks. Many of those banks stung by the crisis survived only because of a bailout from the government. But a prolonged recession and an unrelenting 25% unemployment rate in Spain has meant that many of the country’s banks have been in crisis mode all along since 2009.

Now with many feeling the future of Euro-zone is in question, concerns over weak banks in the region are again feeding the fears of the global investment community. Spain is on the receiving end of these fears. In fact, the Economist magazine described this week that although it is Greece that presents the immediate risk to the future of the euro, it is actually Spain’s banks that pose the ‘most difficult problem’ for the euro.

No wonder Spanish banks, which are concerned about getting cut-off from their access capital markets for funding, are treating their customers with kid gloves. Without deposit-funding many of these banks could quickly find themselves in trouble.

Still, Spanish banking customers are seeing through the weaknesses of their country’s banks and their eagerness to get the cash. In general, Spaniards have given these hot offers a cool reception. In fact the European Central Bank reported that deposits from Spain’s banks declined nearly 2% in April despite the enticements from the banks. Meanwhile, it is heyday for British and Northern European banks in the country as Spaniards have been choosing foreign banks over Spanish ones to park their savings.

And if the idea of a free iPad doesn’t bring a bundle of money into a Spanish bank, what will?

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