Spain's herd of white elephants threatens to wreak havoc
THE BOTTOM LINE:GUESTS ARRIVING at Santander Financial City, the head office of Spain’s and the euro zone’s biggest bank, are met by two-foot-high robotic butlers. You type in your name on a computer and you follow a robot to your meeting. The 400-acre compound, 18km outside Madrid, is home to a golf course, lakes and olive groves. AIB Bankcentre it is not.
It sounds like an act of folly, an example of the overconfidence that gripped European banks. But the robots and indeed the complex outside Madrid are nothing of the kind. Santander was one of seven Spanish lenders to pass stress-tests last week undertaken to show that the country’s €100 billion banking bailout agreed in July was more than enough.
Santander – unlike its home country – does not appear to be in financial difficulty, mainly because it has spread its risk internationally; Spain accounts for just 20 per cent of profits.
In fact, Santander has been strong enough to take advantage of weaknesses elsewhere; it bought AIB’s Bank Zachodni WBK in Poland, the Irish bank’s “jewel in the crown”, in 2010.
While given a clean bill of health last week, Santander has not rested on its laurels. The bank floated its Mexican business last month, raising $4 billion (€3.2 billion) in the world’s third-largest stock-market sale this year. The spoils went to bolster the parent in Spain to keep the robotic butlers running at full power.
The real act of folly associated with the Santander compound was in the decision of Irish investor Derek Quinlan to buy the complex with British investor Glen Maud.
Quinlan, as he did on so many property deals during the heady days of the Noughties, bought the complex for an eye-watering €1.9 billion with vast amounts of bank debt.
A syndicate of banks hold the senior loans, while Abu Dhabi’s sovereign wealth fund, Aabar, bought the mezzanine debt and loans on Quinlan’s equity from Royal Bank of Scotland in 2011 for more than €200 million.
Aabar is now seeking to seize control of the investment through the Dutch courts.
Santander pays more than €90 million a year in rent which services the interest on the senior debt. The other debt is another matter.
Quinlan’s plan was to sell the property on or refinance the debt but that fell apart as the deal closed a day before Lehman Brothers failed in 2008 and bank liquidity evaporated.
Spain is not without its own hubristic feats that rival Ireland’s most egregious excesses.
In Ireland, we have ghost estates; Spain has ghost airports. Castellon airport in the eastern Valencia region was completed 18 months ago at a cost of €150 million. A commercial flight has yet to land at the airport and the only aircraft in sight is the one sitting on the oxidising statue of Carlos Fabra, the local boss of the conservative People’s Party and the brainchild of the airport.
Another ghost airport is at Ciudad Real, south of Madrid, dubbed “Don Quixote Airport”. It cost €1.1 billion and the developers had high hopes that it could be a spillover from Barajas airport in Madrid, but it has lain dormant since April when it went bust.
The size of the airport is best understood by the fact that the runway is long enough to accommodate a A380 double-decker aircraft.
Also south of Madrid stands the ghost city of Seseña, half-built by Francisco Hernando Contreras – “El Pocero” or the “Drain Man”. He planned to build 13,000 apartments in the small town but abandoned the project after 5,600 were completed; 2,000 remain empty.
These follies are Spain’s version of the Irish Glass Bottle site backed by Bernard McNamara, Quinlan and €412 million in loans from banks that are now nationalised. Just as the Ringsend site is now in the National Asset Management Agency, these projects are likely to end up in Madrid’s proposed “bad bank”.
Spain’s white elephants epitomise the gross overdevelopment in Spain, much like the Anglo Irish Bank’s proposed headquarters in Dublin’s docklands typifies Ireland’s greedy banks.
While Spain is two years behind Ireland in acknowledging the extent of its problems, the story of the rescue of Madrid is playing out much as Dublin’s did in 2010.
Spain has the added complication that overspending in the country was driven by regional governments now seeking bailouts from Madrid while threatening secession.
It seems a sovereign bailout is only a matter of time as Mariano Rajoy’s government is well down the slippery slope. There’s a saying in Spain heard in response to its economic woes: “Es lo que es” – “It is what it is.” It all seems horribly familiar and yet still tortuously slow two years on. If only Europe had robots to make the path to a bailout easier to follow.