Print this article

EXCLUSIVE: It's Been Tough, But Spain's Private Banking Sector Is Seeing Recovery - Part 1

Stephen Little

27 November 2014

This is part one of a two-part feature examining the Spanish private banking and wealth management market; it is designed to shed light on a market that might not always get the attention it merits. We hope readers who have comments or insights of their own on this market send them to us.

Since the financial crisis erupted over six years ago, Spain’s banking system has undergone its biggest upheaval in modern history. After being hit hard by its exposure to toxic real estate assets following the collapse of the country’s property market, Spain’s banks were bailed out to the tune of €41 billion ($56 billion). One of the biggest banks to be hit was Bankia, formed from the merger of seven savings banks in 2010. Following a return to profit, the Spanish government announced it would start selling off its controlling stake in the nationalised lender earlier this year, signalling a turning point in the country’s banking industry.

Events, however, are starting to turn in the country's favour. The Spanish economy finally looks as if it is on the road to recovery. In October last year, Spain officially emerged from a two-year recession with economic growth of 0.1 per cent for the preceding three months and earlier this year it finally exited its bailout programme.

But what has been the impact on wealth management in Spain?

As a result of the financial crisis the sector has been through a period of unprecedented change. While some firms have fallen by the wayside, others have been swallowed up in the flurry of mergers and acquisitions encouraged by the Spanish government, leaving fewer players.

The wealth management industry in Spain is dominated by Spanish banks such as Santander, La Caixa, BBVA, Bankinter and Sabadell. International private banks have a small share of the market but are gradually losing their foothold in Spain, seen with the acquisition by La Caixa of Barclays’ operations earlier this year. There are also a number of other smaller players, such as Blevins Franks, catering to Spain’s large expat population, while the family office sector remains somewhat underdeveloped.

Francisco Gómez-Trenor y García del Moral, chief executive of , the number of millionaires in Spain hit 465,000 in 2014, up 24 per cent from 2013. The growth in the number of millionaires in Spain was nearly twice as high as in 2013, when the increase was 13 per cent. The report also revealed that there were now 1,766 ultra high net worth individuals (those with more than $50 million).

Despite this rise, del Moral said the market remains a challenging one due to the scarcity of new sources of wealth.

“In Spain there are scarce new sources of wealth and those that exist are arising from foreign investment and venture capital funds that buy Spanish companies. Consequently, we mainly win new clients who withdraw money that they already have in another bank to bring it to Mirabaud. The wealth that has remained in Spain asks for and demands a bank that prioritises the preservation of their assets and offers them liquidity,” said del Moral.

Jose Luis Jiménez, chief executive of March Gestión de Fondos, the wealth management arm of the private banking general manager, said clients in the sector were progressively becoming more “risk conscious and demanding”, particularly in terms of diligence and transparency. He said that one way Caixa Bank has managed to remain competitive in the current environment is through its investment in technology and personalisation of services.

“Clients are becoming increasingly tech savvy in their personal lives, and private banks are learning that their services need to be aligned with this trend to meet changing expectations. We have invested heavily in our technological capabilities to address this which has helped us to attract and retain clients,” said Gandarias.

Amid the scandals and problems of the market following the financial crisis, Jiménez believes it is March Group’s conservative approach to risk that has helped its fortunes improve.

“It is this philosophy that does well in the Spanish market,” said Jiménez.

“With growing competition, margins are decreasing. The lack of differentiation is also important. The banking sector is going to experience difficulties in the next three to five years and if you specialise and can provide value to clients you will do well,” he added.

Calvo said that technology and the ability to adapt to the global financial environment had formed a key part of the BBVA's strategy since 2008.

“A strong balance sheet, rating and solvency, global presence and a well-diversified portfolio has allowed BBVA to remain competitive following the financial crisis,” said Calvo.

“We believe that alternative investments will recover an important role in our clients' portfolios as a way to diversify investments in this environment and we are analysing new opportunities in private equity and real estate,” he added.