Updated with Santander comment below.
We know cashflow doesn’t necessarily mean very much when it comes to banks, but as the figure was missed out in Santander’s unaudited full-year report issued last month, and has since been released to the Spanish stock exchange, we thought we’d highlight it nevertheless:
So here goes.
Santander’s full-year net operating cashflow came in at -€18.04bn for the full year ended December 2009, versus €15.83bn at the end of 2008:
Santander’s own preferred measure, however is the net increase(decrease) in cash and equivalents, which fell by €10.892bn in the year to €35.889bn.
To compare, Santander’s Spanish rival BBVA reported full-year net operating cash flow of €2.567bn, and an increase in cash & equivalents of 1.69bn to €16.33bn.
So could Santander be relying more on cash equivalents to fund its day-to-day liquidity than BBVA?
According to Deloitte, “cash equivalents are short-term, highly liquid investments (expected to be converted to cash in three months) held to meet short-term cash needs rather than for investment or other purposes.”
Presumably — and we’re not sure here — that includes assets that can be placed at the ECB window in exchange for temporary liquidity?
It’s interesting to note then that there was a sudden burst in such cash equivalents on Santander’s cashflow statement from December 2007 onwards:
About the same time there was a sudden improvement in Santander’s operating cashflow:
The December 2007 reporting period, incidentally, coincided with the following story from the Telegraph’s Ambrose Evans Pritchard (subsequently debunked). Published in January 2008, it seemed to claim the ECB had conducted a semi-clandestine bailout of Spanish banks via its liquidity window.
As Pritchard wrote back then:
Reliance on the ECB window appears to have kept the mortgage sector afloat despite the sharp slowdown in the Spanish property market and the de facto closure of the capital markets for this type of business, allowing Spain to avoid the sort of mishap suffered by Northern Rock in Britain and Countrywide in the US.
The data appear to confirm suspicions that the EU authorities have carried out a covert rescue of the Spanish mortgage banking system. It may equal the taxpayer rescue of Northern Rock in Britain, and possibly exceed it in proportion to the overall size of Spain’s economy.
The key difference is that the ECB rescue operation in Spain has been disguised. A veiled method is necessary since the eurozone lacks a clear-cut lender of last resort. The IMF has warned that this gap in the architecture of of the single currency could prove serious in a crisis.
Traders say the Spanish authorities are quietly turning a blind eye to use of the ECB window, and in some cases may be encouraging banks to go to Frankfurt – a claim denied by the Bank of Spain.
It’s worth pointing out that BBVA experienced a similar cashflow and cash/equivalents boom in December 2007.
*Update: 1923 GMT – Santander’s spokesman writes to Alphaville to inform us:
Is it really the habit of Alphaville to go trying to connect dots without even asking the bank concerned? The suggestion that the ECB has semi-clandestinely bailed out Santander is patently absurd.
There is nothing in that cash flow statement or any other to suggest it.
The variation in the net cash and equivalents position – a decline in 2009, as markets normalized – makes perfect sense and the cash and cash equivalents balance is appropriate for a bank with a balance sheet of Santander’s size. As for the operating cash flow, ECB operations (if there were any) wouldn’t be reflected there – that represents cash flow from normal business activities.
Santander has been clear about its relations with the ECB and other central banks. As markets melted down, in 2008-2009, being a prudent bank, Santander bulked up on assets that could potentially be discounted with central banks – about EUR 100 billion – and has said so openly.
(See page 14 of the attached presentation.) Santander has not, however, drawn in a significant way on the ECB or other central banks – it hasn’t had to, as it could get funds more cheaply from the market.
We stand corrected.
Related links:
BBVA, an exercise in Spanish banking losses – FT Alphaville
Provisioning for losses the Spanish way – FT Alphaville