The explosion of Spanish banks and the dreams of converting Miami into the new Madrid have hit a road block. Spanish banks are by far the dominant influence on the Miami banking market, famed for being a Latin American banking center. Hidden in the local landscape, Spanish banks have gobbled up City National, Total Bank, and Mellon United among others. They are suffering indigestion as real estate credit issues and other unsuspected problems have forced them to put in more capital and slow down their growth. Coupled with similar problems back home, the Spanish banks hope for a revival of the empire gives us cause for reflection.

Growth of the Cajas (the Spanish equivalent to savings and loan banks) has been slowed and the Spanish government has sought to reduce their number, which account for about half of the banking system as one or another appear on almost every corner in Spain. From more than 40 Cajas, less than 15 will remain. Caja Madrid (one of the largest) is merging with Bancaja; Caja Galicia with Caixa Nova and CAM is also merging.

The forced consolidation will slow their plans in Miami as well. Spanish banks nevertheless will be a major contributory force in the Miami banking scene as they control 3 large local banks – Mellon United, Total and City National. It is only a question of time until Compass Bank owned by BBVA, present in north Florida, and Sovereign Bank owned by Santander are here as well. Like everything else in today’s economy, survival is success and growth will have to wait but it will come and with it Spain will lead the way in banking as well as soccer.(See the list of Spanish banks in Miami.)

Everyone wants a deal and to become an instant millionaire. And it seems people wanting to buy a bank are crawling out of the woodwork. Of course along with that picking up real estate at 20 cents on the dollar would be nice. Consequently, capitalists are sitting on the sideline wanting for the apple to fall in their lap. The FDIC has gotten wise and more selective. Even if one can get a deal, it is not as rich and the chances of being selected from the bidding process if a bank falls by the wayside is slim, unless you have “friends” in high places. Buying a bank with problems is equally difficult as investors not only have to buy the equity from existing shareholders but need to put a slug of fresh capital in to stabilize and grow the bank. Then there is the problem of profitability. Not easy in today’s banking market. Even more difficult is knowing what you are buying or selling as most banks have a handle on their real estate problems but it is a moving target. These issues challenge existing shareholders who are being pressed to put in more capital. Is it good money after bad and where is the bottom? All of this is in a terribly depressed commercial real estate market and banks are on the clock in a race with regulators. It’s a shame that it is so difficult to match those that have and want to sell with those that want to buy. In any case the big get bigger and the sweetheart deals are done.

In the past two years we have had more banks failing than ever and most observers estimate we will shrink further from 8,000 banks to 5,000. Will the system be any stronger and will we be better off? The eventual loser will be Main Street and not Wall Street as much of the shrinkage will continue to be in community banks, which are the backbone of credit for small businesses. For all of their lip service, the big banks really don’t care about the small client and applying online or over the phone to a processor in cyber land increases the difficulty for small businesses to have access to their banker. Ninety-four percent of the bank failures are real estate related but what is the cause? Loose credit standards or flaws in the system?

When Congress changed the rules on the S&L’s in the late 80’s they allowed for the creation of the “Country Wides” and the securitization and packaging of real estate loans. Local banks lending local money in the community hasbeen a traditional engine for job creation and growth. Real estate is very much a part of this success.

The magnitude of the real estate collapse caught the community banks unprepared and the government rather than seek means to assist these banks swooped down on them to thin them out. Where were these regulators when they should have been reviewing and enforcing asset quality as the world watched the bubble grow? They have been using every available body to enforce Patriot Act money laundering standards, diverting the banks from business at-hand and requiring them to pour excessive resources into monitoring and compliance, sometimes with as much as 20% of the entire staffs for this effort. So who is at fault? We know on whose shoulders the burden is resting as we wait for the weaker of the pack to be picked off one by one while Main Street and small business take it on the chin.

Leif Gunderson has just been appointed as the new President of Sunstate Bank. Total Bank has added an In House Wealth Management Division to be led by Joel Palatnik, previously with Legacy Wealth Management. In their effort to expand nationally Barclays Wealth has added 3 senior bankers for their Miami office. Tony Esses arrives after 24 years at HSBC as a Director, joined by James Hafele and Robert Sperber of Morgan Stanley Smith Barney. The Bank of Miami has hired Tim Christian, previously with The Bank of Coral Gables as their new Credit Manager. Chuck Klenk, formerly with Wachovia/Wells Fargo has been brought on board by Bank United as the SVP for Corporate Commercial Banking. Rene Negron, formerly of AXA Advisors is now with International Planning Group.