Spain Teaches Catalonia a Lesson about the Power of Money

by Don Quijones, Wolf Street:

Money is fickle and fearful.

Within 48 hours this week, Catalonia, Spain’s largest regional economy, lost three of its seven biggest homegrown multinational corporations and several large national companies — if only on paper — to cities in other regions of Spain.

The first important company to “leave” since Sunday’s referendum was mid-sized pharmaceutical company Oryzon Genomics SA, which announced on Wednesday that it was departing Catalonia for Madrid. The same path has been traveled recently by firms like Derby Hotels, Unico Hotels, WPP and Schibsted.

But it wasn’t until Banc Sabadell, Spain’s fifth largest bank, announced that it was changing its registered company address to Alicante, a provincial city on Spain’s south-eastern coast, that the threat of a corporate exodus from Catalonia began to be taken seriously.

Banc Sabadell is as Catalan as the town that bears its name, but its management has been warning for years that it would move out of the region in the event of Catalan independence. That threat wasn’t taken seriously until Thursday.

But the move is only on paper — something that is not being reported nearly as clearly as it should be in much of the Spanish and foreign press. For the moment Sabadell is not moving its head office, nor is it relocating any of its workers. All it has done is change its legal address, and what’s more with minimal fiscal fanfare — in most of Spain (with the exception of the Basque Country and Navarre), all corporate tax is paid into the central coffers.

There are three main reasons for Sabadell’s (administrative) move:

  1. Within Spain the Catalan market only represents 26% of Sabadell’s operations today, whereas the rest of the Spanish market accounts for 74%. The bank also has operations in the UK and the US. But its biggest market is the Spanish mainland (outside Catalonia) and if independence occurs, it could end up being stranded from it.
  2. As a Catalan-based (albeit Spanish-registered) bank, it was beginning to suffer a run on deposits as customers began moving their money to other Spanish banks, either because they were afraid of what could happen to their funds in the event of independence or as punishment for its Catalan connection. Now, ironically, it could face the wrath of the other side of the divide.
  3. Most importantly, if Catalonia declares independence, its two main banks (Sabadell and Caixabank) could be cut off from European Central Bank funding, though it would be exceedingly difficult to pull off as they also have substantial operations in the rest of Spain. And if that were to happen, it would mean no more virtually interest-free loans from the ECB or access to Europe’s repo markets. In other words, a death sentence.

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