La Caixa: Spain's quiet powerhouse

On the Avenida Diagonal of Barcelona, not far from the Camp Nou football stadium, stand two dark towers. They were built in the early 1970s for a midsized regional savings bank and the charitable foundation attached to it. Not especially tall or flashy, the towers provided a suitable base for a lender founded to safeguard the modest savings of the city'sworking class.

Forty years on, the bank's headquarters look much the same - but there is nothing modest about the sprawling financial and industrial empire that is La Caixa today. The group's interests range from retail banking in Spain to telecoms in Brazil, from oilfields in Canada to power stations in Mexico; it touches politics and the media, funds the arts and countless social projects. Part bank, part holding group and part charity, Caixa is Spain's quiet powerhouse - little-known abroad, but hugely influential at home.

Caixa is also a survivor. Its banking arm is the only major Spanish savings bank that made it through the country's recent financial crisis unscathed, picking up a raft of stricken rivals along the way. Today, as Spain's recovery shifts into a higher gear, Caixa's economic and political reach has never been greater. The ambition inside those towers, however, burns as brightly as ever: "I want Caixabank to be one of the biggest banks in Europe. And I won't draw breath until we attain this," says Isidro Faine, Caixa's veteran chairman.

For much of the recent past, Caixabank has been overshadowed by its better-known Spanish rivals, Banco Santander and BBVA, both of which have large operations outside their home market (and are worth more on the stock market). In Spain itself, however, Caixabank is the undisputed number one. It now boasts more branches and customers, and a larger domestic loan book than any other bank in Spain - and has made clear that it will do whatever it takes to keep that lead.

The real pillar of Caixa's power is the group's portfolio of large shareholdings in many of Spain's top companies, from oil and gas group Repsol to energy provider Gas Natural and mobile phone giant Telefonica. These holdings give the Barcelona-based group unrivalled influence, and crucial board seats, across much of corporate Spain. Whether there is a deal to do, a chief executive to oust or a foreign bidder to scare off, Caixa and its ubiquitous chairman will rarely be far from the action.

In the political sphere, too, Caixa's reach is hard to ignore. The group has played a crucial role in the government's campaign to overhaul Spanish banking. It is also a key player in the struggle over Catalan independence, exerting pressure on both Madrid and the regional government to lower the tensions and come to an agreed settlement. Caixa is close to the royal house (it employs the king's sister, Princess Cristina), and has established strong financial and personal links with many of Spain's most important media outlets. It is rare to read a bad word about the Catalan group in either the Barcelona or Madrid press.

The foundation claims to be the third-biggest private charity in the world, trumped only by the Gates Foundation in the US and the Wellcome Trust in the UK. It has an annual budget of €500m, and assets worth more than €20bn. It funds two of the finest art galleries in Spain, along with hundreds of projects in areas such as health, education, science and international development. Even in death, La Caixa claims a role: more than 15,000 mortally ill Spaniards have taken their last breath while under the care of palliative nurses and psychologists sponsored by the foundation.

The Caixa group itself remains in rude health. But it is not without its challenges - internal and external, financial and political. Perhaps the most urgent concern is the poor level of profitability at Caixabank, whose core operations make little money, and that relies heavily on dividends from its investment portfolio to prop up earnings. On the political front, Caixabank stands to suffer if the tensions between Madrid and its home region spiral out of control. Finally, there is the question of the group's structure and organisation, and whether Caixa can really continue to play on as many stages as it currently does, and if so, who will lead the show.

For the moment, that man is Mr Faine, the 72-year-old chairman of both Caixabank and the Caixa foundation. The son of illiterate Catalan peasants, Mr Faine was raised in a house without running water and electricity, and started work aged 13 in a bicycle repair shop. Over the years, he has acquired wealth and status, a corporate box in Barcelona's elegant Liceu opera house, a taste for golf and powerful allies such as Mexican billionaire Carlos Slim and Telefonica boss Cesar Alierta.

Yet Mr Faine has little in common with the smooth-talking banking elite in Madrid. Deeply religious and a father of eight children, Mr Faine likes to share folksy anecdotes and salesmen's wisdoms picked up during his hardscrabble years. He believes in simplicity, and never keeping more than three things in his head at the same time. He taught his parents how to read and write, but says he learnt everything there was to learn from his father and mother.

Mr Faine is habitually described as Spain's most powerful businessman, yet in an interview with the Financial Times the chairman laughs off the suggestion. "Power doesn't exist for me - only service," he says, before adding for emphasis: "Power is not a concern for me."

His influence derives not just from what he controls but how he controls it. Mr Faine enjoys a freedom of reign that is arguably unique among non-owner managers at large international corporations. "Faine is enormously powerful. At this point Caixa is a one-man show," says a senior Spanish politician.

Neither the foundation nor the bank place meaningful governance limits on their chairman. At the foundation, he is surrounded by an eclectic but hardly fearsome mix of board members. They include a pharmacist, a marine biologist, a newspaper publisher and long-time business partners such as Mr Alierta, along with political figures such as Javier Solana, the former secretary-general of Nato.

The bank, meanwhile, has no shortage of competent executives, but none who comes close to rivalling Mr Faine's power. When he clashes with top managers - as happened last year with Juan Maria Nin, the bank's experienced but restless former chief executive - they are swiftly let go. The foundation's stake is so dominant that no other investor can hope to exert meaningful pressure on management. "This is a great financial power but without any constraints. Shareholders don't have much power at the bank," says Andreu Misse, editor of Alternativas Economicas, a Barcelona-based magazine.

Caixa's remarkable structure and unusual breadth of ambition are both rooted in the same thing - the bank's former status as a caja, or regional savings bank. Cajas were set up to provide basic financial services to local savers and businesses, and to help economic development by recycling their profits in their region. More often than not, there was a close relationship between local caja bosses and politicians.

The cajas came undone during Spain's decade-long property boom. No longer restricted to their home region (as they were by law until 1988), they expanded and lent with reckless abandon. When boom turned to bust after 2008, all but a handful of cajas collapsed. Of the larger savings banks, only La Caixa survived, making the most of its superior balance sheet and management to take over seven of its troubled peers.

"They were one of the very few savings banks in Europe that always understood the importance of having good management," says Jordi Canals, dean of Iese Business School. Unlike many of its rivals, he says, Caixa had long been seen as a "sophisticated institution", combining cutting-edge technology with a prudent approach to lending.

Another factor that worked in Caixa's favour was that it was far too big to be swayed by local politicians. "They have always been careful about keeping their independence from politics, unlike so many other savings banks. La Caixa survived and the vast majority of savings banks are gone," says Prof Canals.

Spanish power: Criteria and Caixabank, selected stakes It was not just Caixa the institution that survived, but also - at least in the mind of Mr Faine - the idea of the savings bank as an engine of change. "Faine was a big believer in the caja model," says a Madrid banker. "The caja was an institution that served a social purpose that also happened to be a bank. But he extended that concept very widely: to him, the caja has a social, economic and even political purpose. That is how he justifies the industrial holdings."

Mr Faine does not dispute that he pursues multiple goals, but insists that the foundation and the bank ultimately have the same interest: "Without the bank there is no philanthropy. Without profits, there is nothing."

What is striking, however, is how Caixabank's profits are made. Close to 80 per cent of its pre-tax profit comes in the form of dividends from Telefonica, Repsol and minority shareholdings in banks in Mexico, China, Portugal and eastern Europe. These holdings, says one bank analyst, "consume a lot of capital and add zero value - but Caixa can't sell them because then it would become clear that the rest of the banking businesses essentially make no money".

Caixa recently launched a five-year strategy aimed at lifting profits and return on equity. Analysts were pleasantly surprised by the specificity of the commitments, but many are dubious as to Caixabank's broader strategy. Unlike its main rivals, the Catalan group remains hugely exposed to the Spanish banking market, with little meaningful international presence. Its latest attempt to expand - a bid to take full control of BPI in Portugal - can hardly be seen as a foray into a growth market.

Mr Faine is keeping a weary eye on the storm whipped up by Catalonia's independence movement. The Catalan government has sided with the movement and is hoping to gain fresh legitimacy in a regional election in September.

The issue is problematic for Caixa. In the rest of Spain, where it has the bulk of its branches and clients, it is often seen as the "economic arm of Catalan society", as one Madrid chief executive puts it. In Catalonia, Mr Faine's opposition to independence is well-known - and has made the bank a target for criticism from independence activists. Too Catalan for some, not Catalan enough for others, Caixa faces a tricky balancing act in the months ahead. Then there is the issue of what would happen if Catalonia manages to break away. Analysts believe Caixa would have to move its legal seat to remain part of the financial architecture of the eurozone, and maintain access to the European Central Bank's liquidity programmes.

Mr Faine makes clear he sees the currency issue as crucial: "I have no political obligation in Catalonia apart from one - that Catalan savers don't lose their money. That is the only thing I worry about. So when you give me euros I can't give you back something else. That is what I have to defend."

The chairman insists that Caixa is a "private institution" and that "political debates have no bearing on our raison d'etre". But that has not stopped him from trying to strengthen the bonds between the region and the rest of Spain.

Mr Faine, says a banker in Madrid, "sees himself as a bridge between Catalonia and Spain". It is an ambition that is reflected not least in a string of deals and transactions that have embedded Caixa ever more deeply in the Spanish economy. Whether Abertis, Gas Natural or the retail bank itself - they all have made a significant effort to expand into the rest of Spain. "He is trying to have the group as exposed as possible to Spain, both to make separation more painful and to have insurance should there really be a split," says the banker.

If it is up to him, Mr Faine will continue Caixa's financial, industrial and political balancing act for many years to come. He is well past any official retirement age but has no intention of quitting. "I will always work. This idea of retiring, in my case, doesn't apply."

© The Financial Times Limited 2015. All rights reserved.
FT and Financial Times are trademarks of the Financial Times Ltd.
Not to be redistributed, copied or modified in any way.
Euro2day.gr is solely responsible for providing this translation and the Financial Times Limited does not accept any liability for the accuracy or quality of the translation