Global Privatisations: Argentaria- Preview

Global Privatisations: Argentaria. The vision, the brand and the successful execution of an oversubscribed IPO

by Nicolas De Santis

Keywords: Global banking governance> mergers & acquisitions> successful global privatisations and IPO’s> financial conglomerate strategies> deregulation> state assets reorganisation> single market and the Euro> industry

consolidation> federal banking systems> value creation>strategic vision> cultural transformation> brand portfolio management> branch network strategy> strategic communications.

2 GOLD MERCURY INTERNATIONAL white paper: global privatisations

Gold Mercury International was a key actor

in the successful transformation, launch and privatisation of Argentaria, a holding company which included all the financial institutions owned by the Spanish state.

Executive Summary: Initially called Corporación Bancaria de España (Spanish Banking Corporation) and later renamed Argentaria by Gold Mercury International, the new state holding had 6 million clients, 1,500 branches and 20,000 employees operating in over 100 countries.

This white paper explains the global scenario of state owned privatisations, the vision and strategies adopted, our key project challenges for the Argentaria project and the political, financial, regulatory and economic background to one of the most successful privatisations in public state asset disposal history. The initial Argentaria offering raised Ptas 154 billion (some $1.3 billion). Argentaria later merged with BBV Bank and is now the 15th largest financial institution in the western world with a market capitalisation of over €61 billion.

3 GOLD MERCURY INTERNATIONAL white paper: global privatisations

The background to Argentaria The changing Spanish financial system and the European single market forces affecting the Spanish banking system 1974 -1993 Liberalisation: In 1974 a liberalisation process of the banking system was initiated based on the concept of ‘freedom to open branches’. In 1987 interest rate liberalization was established, while 1991 witnessed the formation of large banking groups, previously imposed credit restrictions were lifted with a view to cooling down the overheated economy and at the end of 1992 the obligatory investment coefficients demanded of the banking institutions were eliminated.

Consolidation: Between 1987 and 1991 the banking sector underwent a profound transformation, accelerated by the prospect of the European Single Market and the liberalisation of capital, which produced a heavy concentration of financial institutions. Of the 64 Spanish banks existing in 1976 only 35 still existed in 1991.

Large mergers: With respect to the principal national banks, in 1977, the Bank of Bilbao and the Bank of Vizcaya were the first to initiate the process of merging. This initiative was completed in 1989, giving way to the present Bank of Bilbao Vizcaya (BBV).

In 1991, the Banco Central and the Banco Hispano Americano also merged to form the Banco Central Hispano (BCH), the largest private bank in Spain with respect to volume of deposits.

Government intervention: On December 28th 1993, the Banco de España intervened in Banesto naming a new Board of Directors and guaranteeing all the bank’s deposits. Four months later (April 25th 1994) the crisis produced in the banking system, owing to the aforementioned intervention, was resolved when Banesto was auctioned off to the Bank of Santander. Besides Santander, the Banks of Bilbao-Vizcaya and Argentaria also bid at the auction.

Foreign banks in Spain: Foreign banks have represented an innovating force in Spain since their arrival in 1978. In 1994, 75 foreign banks were operating in the Spanish market with a share value of approximately 20% of total creditary investment. The majority of foreign banks focused on the corporative banking service, since they were limited as to the amount of deposits and number of branches they could hold in the domestic market. The legal framework established by the E.U. called for the equalisation of the foreign banks with their Spanish counterparts in a maximum time limit of seven years, which terminated in 1993.

Most Spanish banks provided a full range of services and operations to corporate and private customers, including the handling of collections and payments outside Spain through their organisations abroad.