LISBON: Big Spanish banks appear unfazed by market turbulence

On Oct. 3, Banco Santander successfully sold \7 billion worth of bonds to 129,000 retail investors to finance the acquisition of the Dutch bank ABN AMRO. The $9.9 billion in bonds were sold through the banks branch network, which handles its private banking clients, and the average amount purchased by each investor was about \54,000.

On the same day, Banco Bilbao Vizcaya Argentaria introduced a mortgage-based financial product that provides home owners over the age of 65 a lifelong income, paid monthly, based on the value of their home and their age, in exchange for the property - which they could continue to occupy.

If either institution, the two largest banking groups in Spain, or their clients, were worried about mortgage and financial turmoil, or a downturn in the housing market, it did not show.

Both banks, bellwethers of the Spanish financial system, remain bullish about the economic and financial market outlook.

“We expect the market to continue normalizing,” said Angela Roche, a Santander spokeswoman. “Santander is in a comfortable liquidity position and has not been affected. Moreover, Santander has no exposure to U.S. subprime mortgage risk or that of any other region.”

As for the potential exposure of the banks wealth management clients, Roche said, “Our investment vehicles dont have significant exposure to U.S. subprime mortgage risk.”

Santander is one of the leading wealth management providers in Spain through its branch network, through a subsidiary, Banesto, and through a specialized private banking unit, Banif, Roche said.

At BBVA, Isabel Goiri, head of investor relations, said that the bank had been insulated from the problems of the credit markets by the strength of its retail banking base.

“We are pretty much a retail business,” Goiri said. “Only 17 percent of our profit comes from wholesale and investment banking compared to around 40 percent European average. Banks that are more wholesale or investment-based are more vulnerable.”

Both Santander and BBVA said they expected growth in their asset management and private banking businesses.

“Spain leads Europe in the growth of new fortunes, up 9 percent last year,” BBVAs private banking unit said in a written response to a question on the outlook for wealth management. “Spain is a very attractive market for its size and high growth potential.”

“The future looks bright,” said Ulla Karppinen, a BBVA spokeswoman. “Business is going well. BBVA has not been affected by the current market turbulence in this sector.

“Most of our customers investment portfolios are managed in the long run, are very well diversified in terms of products and rigorously managed in terms of risk.”

Looking ahead, Karppinen said that a decline in overall merger and acquisition activity could hurt investment markets, “but so far nothing like that is seen.”

In the first half of 2007, funds under management by BBVAs private banking and asset management unit, including mutual funds and pension funds, rose 6.9 percent from a year earlier to \81.4 billion, while operating profit of the unit rose 19.3 percent to \118 million.

At Santander, the asset management unit foresees annual growth above 10 percent in assets under management and revenue until 2009, according to bank documents, with pretax profit growth of more than 15 percent. The private banking unit projected assets under management, which totaled \96 billion at the end of last year, to grow 18 percent annually over the same period.

While both banks were bullish, analysts warned that much could depend on the length of the credit squeeze as well as the effect of the U.S. subprime crisis on the economy in general and he domestic construction and housing markets in particular.

The Spanish economy is expected to grow 3.7 percent this year, down from 3.9 percent in 2006, and to slow further in 2008, according to a forecast by the European Commission last month.

That is still well above the 2.5 percent growth rate of the entire euro zone. But the recent sudden cooling in the domestic construction and housing sector is a source of anxiety. “We have growing concerns about the domestic real estate market,” a report by HSBC said last month.

After tripling since 1995, house price rises have slowed in recent months to an annual growth rate of less than 6 percent, compared with more than 8 percent at the end of 2006. The downward trend is expected to last a while.

“The cumulative effect of the series of ECB rate hikes since December 2005 is finally impacting household finances, where debt has reached 120 per cent of gross disposable income,” BNP Paribas said in its September report on the Spanish economy, referring to the European Central Bank.

LUXEMBOURG: Striking down one of Europes most visible symbols of economic protectionism, the European Court of Justice ruled Tuesday that a German law shielding Volkswagen from a hostile takeover illegally restricts the free flow of capital within Europe.

The decision, which was expected, clears the way for Porsche, the sports-car maker that already owns 31 percent of Volkswagens shares, to take over the company, Europes largest car manufacturer.

“We welcome the decision of the EU court,” a spokesman for Porsche, Frank Gaube, said. “This brings us to a position, as Volkswagens largest shareholder, to fully exercise our voting rights.”

Porsche said it would discuss raising its stake at a supervisory board meeting on Nov. 12. Its chairman, Wendelin Wiedeking, has said that owning a majority of Volkswagens shares would strengthen Porsches efforts to collaborate with VW on development and production.

The judgment, read out by the courts president, Vassilios Skouris, in a terse 10-minute session in a nearly-empty chamber in this tiny grand duchy, was a stinging setback for the German government.

It comes at a time when Germany is increasingly nervous about foreign investors, particularly wealthy state-owned investment funds and hedge funds, buying into what it deems strategically important industries.

One of Germanys governing parties, the Christian Democratic Union, is drafting new regulations that would encourage foreigners to disclose investments in German companies, and expand Berlins right to approve or reject those investments, based on the national interest.

In Volkswagens case, the specter of a foreign takeover has been lessened by the role of Porsche, a fellow German carmaker with common historical roots. Ferdinand Porsche, the patriarch of Porsche, led the company that designed the forerunner of the Volkswagen Beetle.

German officials emphasized this, even as they conceded they had lost the battle to defend the so-called Volkswagen Law.

The law was adopted in 1960 to secure the interests of the state of Lower Saxony, which owns 20 percent of Volkswagen and views itself as a guardian of workers rights. It caps the voting rights of any other investor in Volkswagen at 20 percent, regardless of how many shares it owns.

“Through the stakes held by Porsche AG and the state of Lower Saxony, Volkswagen AG is protected from any financial investor wishing to seize it,” the prime minister of Lower Saxony, Christian Wulff, said in Germany after the decision was announced this morning.

“They cannot make speculations against shareholders who hold more than a 50 percent stake,” he added.

Shares of Volkswagen fell more than 2 percent in midday trading in Frankfurt. The stock has more than doubled this last year, because of improved operating results as well as speculation about its future.

The German Justice Ministry expressed disappointment but said it would move quickly to change the law. The ministry said it was not yet clear whether the law would be modified or scrapped entirely.

Based on the courts judgment, it is not easy to see how Germany could salvage much of it. The judges ruled that the laws two key provisions Д the 20 percent limit on voting rights and the right of the federal government and Lower Saxony to appoint two representatives each to Volkswagens supervisory board Д breached European law on the free movement of capital.

In a statement summarizing the ruling, the court said Germany had been “unable to explain why, in order to meet the objective of protecting workers, it is appropriate and necessary for the federal and state authorities to maintain a strengthened and irremovable position in the capital of Volkswagen.”

Now that Porsche has the right to tighten its grip on Volkswagen, the fears of the workers are likely to loom large.

Volkswagens employees have gone to a German court to halt a plan by Porsche to allocate seats on the board of a new holding company in a way that would reduce their number of seats to 3 out of 12, from 10 out of 20 on the Volkswagen board. A decision on that is expected Wednesday.

The chief of Volkswagens works council, Bernd Osterloh, said he regretted the European courts ruling. According to Reuters, he described the law as the “victim of a raging neo-liberal mainstream” in Europe, language used by critics of what they often label American-style capitalism.

For now, Porsche seems eager to calm the waters. The company said it was under no pressure to raise its stake in Volkswagen immediately, and some analysts said it might do so gradually, to assuage the fears of Volkswagens workers that they will lose their voice in a combined company.

Some call it the ‘Titchmarsh factor’. Others cite the popularity of Hugh Fearnley-Whittingstall’s Tales from River Cottage or Jamie Oliver’s latest series, Jamie At Home, in which the TV chefs cook mouth-watering produce plucked from their well-stocked gardens nestling in telegenic bucolic idylls. Whatever the reason, an increasing number of Britons want to bring a bit of the Good Life into their homes and the phenomenon is even extending to flat-dwellers in big cities.

Figures from the Horticultural Trades Association, which represents more than 2,500 garden centres and businesses, reveal a new-found desire among Britons to grow their own, even in the most tiny, unprepossessing spaces.

At a time when sales of all plants and bulbs are, at best, static, and in many cases declining, sales of seeds used to grow edible plants and herbs are already up 7 per cent on last year and are set to break the double-digit percentage increase by the end of 2007.

The most popular seeds in Britain’s supermarkets and garden centres are peas and beans, herbs, salads and tomatoes, but the growing demand for exotic vegetables suggests growers are becoming more adventurous. The surge in popularity of grow-your-own comes at a time when the increasing number of people living alone means many city-dwellers don’t have access to gardens. The government estimates one in three new homes are built on former gardens.

As a result, green-fingered enthusiasts are having to resort to tubs and window boxes to make the most of available space. In the past year Tesco has seen an 18 per cent rise in demand for edible plant seeds, with the biggest rises coming from sales of more unusual vegetables such as chillies (up 42 per cent), sorrel (38 per cent) and garlic (34 per cent), which can all be grown in pots on windowsills or tubs. The supermarket giant has also recorded a 27 per cent rise in sales of growing boxes.

‘There are several reasons for the current boom, but the increase in TV gardening programmes has had a major effect in boosting interest in horticulture - a fact the industry calls the Titchmarsh factor,’ said Tesco horticulture buyer Louisa Knowles. Alan Titchmarsh, who has become an unlikely hero for men and women of all ages, has pulled in millions of viewers to his Gardener’s World series, which at its peak attracted 12 million viewers. Meanwhile, Jamie Oliver’s latest series is attracting some 2.4 million. As with the Fearnley-Whittingstall programmes filmed at his Dorset cottage, Oliver professes the joy of eating fresh home-grown produce that has travelled only a few yards to the kitchen.

Both have tapped into public concern about the carbon footprint of food and how it is produced. ‘Celebrity chefs have done a lot to encourage people to start growing their own vegetables and herbs through the large number of cookery shows on television,’ Knowles said. ‘Food traceability is another key factor; more and more people want to know where their food comes from and that it is free from pesticides.’

In January, 3.8 million people tuned into Grow Your Own Veg on BBC2, compared with the 3.6 million who watched Celebrity Big Brother. The Royal Horticultural Society’s (RHS) book Grow Your Own Veg reached number two in the UK hardback non-fiction chart this year, while its website dedicated to the subject regularly receives 15,000 hits a day. ‘People are feeling disconnected from their food,’ said Guy Barter, head adviser at the RHS. ‘And they are iffy about where their food is produced. By growing their own they’re reclaiming control. They’re not looking to be self-sufficient, but they want something fresh and tasty to add to their diet.’

The society believes much of the drive is coming from parents who want to show their children where food comes from. ‘They’ll keep a pot of potatoes by the back door; children are astounded when they discover that potatoes grow in the ground,’ Barter said.

The market in edible plant seeds, now worth more than 40m in Britain, is the latest indication of consumers’ rekindled love affair with going back to nature. Specialist websites allowing enthusiasts to swap ideas have experienced a surge in popularity, while there are long waiting lists for allotments after decades in the doldrums. ‘Two years ago at my allotment in Woking there were hundreds of vacant plots,’ Barter said. ‘Now we’ve got 60 people on the waiting list.’

As part of its Grow Your Own campaign, the RHS is touring Britain with a 3m x 3m display garden showing what can be grown on a small patch. At present the garden boasts lettuces, endives, Chinese greens, spinach, edible flowers, baby carrots and salad onions.

The society believes its display garden reflects shifting consumer tastes. An increasing number of the society’s recruits are under 40, the majority of them women, many of whom have children. As a result of this change, tastes in grow-your-own are becoming more varied, with enthusiasts opting for easy-to-maintain raised beds and a wider selection of increasingly exotic garden produce.

Britain’s garden centres, which received 144 million visits last year, have reported a surge in demand for polythene tunnels to protect the new varieties of vegetables being produced. ‘In the old days it was all cabbage and potatoes,’ Barter said. ‘Now it’s tomatoes, aubergines and beans of all different colours.’

But he warned that such horticultural exoticism can come at a price. ‘These plants are much more difficult to grow,’ he said. ‘It’s fine if you have a nice hot summer, but this year a lot of people have come a cropper.’

Word of Mouth

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