More rain in Spain

Lets get specific with questions and answers in our views.

Our attention will focus on Spain exclusively today. We have an agonizing party in power, a struggling economy and a very misleading reading of news that constantly hide realities.

A reality check is much needed. Spain is not growing nicely, if at all. Its nominal 3% growth hides significant realities. And nobody can or should claim merit for this. Spain is recipient of a wave of tourism that creates consumption, exports and current account surpluses. We are enjoying the fruits of “diverted” tourism, more affordable, safe with great cultural mix, that is simply not going to North Africa or other Southern European destinations for a number of obvious reasons. WSJ cites a 17% unemployment and just catching up with pre crisis out at 1 trillion-euro.

What is the alternative? One often wonders what Mr Rivera’s steps will be. Will he raise taxes? What will he do to balance the budget and deal with employment? Is Garicano going to be the man in charge of economic policy and reform? Why not simply simplify a tax return, a flat tax and send to retirement a whole generation of tax inspectors in “leave of absence” and state lawyers “abogados del estado”, “registradores de la propiedad”, all those red tape functionaries and tax advisors who get “a kick” out of these complexities.

What about the banks? There goes cover page of Expansion again and again. “ Mr gonzalez and his succession issues”. A stock broker with little past, the innovator” in technology, clearly underperforming in the stock market to its fellow industry foes by 30% to 50%. Is he maybe too smart and pro-technology that the average investor does not understand his value added? Or are we simply having a natural disenchantment with his complexities, his exposure to Telefónica, his inexplicable expansion into Turkey, his underperformance in México and Latam? Is he building a succession based on what? Maybe his sponsored press should offer a little more detail on his objectives.

With an army of “pre-retired” international and talented bankers, lots of golden parachutes (but who left with little self achievement) showing he does not want any real talent “nowhere near”. Pre retires the bankers in their early 50’s and yet modifies by laws to retire after 75. Unfortunately that remains a common trend, and not only applies to finance!! Wow!

Why is Santander trading at over $120 billion market cap and BBVA at nearly $60 billion?? Is not about dilution, its about multiples and ROEs. Santander will make over $10 bill in 2018 and BBVA barely $5.1bill, excluding non core. Do the calculation…. and go back to basics on multiples. One outperforms the other by at least 30%. There you go, yet nobody reacts.

Hopefully we will get to a new level of transparency on Ciudadanos since there is so much hope. And maybe somebody should just stand up and clear the way to fresh talent which needs to remain relentless to a hopefully defiant and challenging new generation!!

We will remain watching closely and minutely in every step.

Rafael Salama Falabella

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