So, wow. According to today’s Wall Street Journal Venezuela has just “taken over” an entire bank. And the move might “snowball into a systemic bank run that puts the economy and political system in play.” A bank run. How 1929. But before any of you comically despondent tycoons start jumping out of your fifth floor windows, we suggest you read scroll down to the part where it says that none of this is true. It turns out that the “takeover” is technically “a legal purchase of a bank that was already for sale,” and that there is “little evidence” that any of the horror stories laid out in the rest of the article will ever actually come true. The Journal, in other words, made you look.
UDPATE: Their link only takes you to the intro, so we’ve excerpted the whole stupid story after the jump, yr welcome.
UPDATE II: You know who else is eager to explain exactly how full of crap the Journal is? This Conde Nast columnist, and he hates Venezuela.
"Chávez Takes a Big Chance With Bank Takeover"
By John Lyons
Wall Street Journal
August 4, 2008
Venezuelan President Hugo Chávez has made nationalizations a centerpiece of his decade-old administration. But his decision to take over a unit of Spanish giant Banco Santander SA carries a new set of risks, touching on local confidence in the banking system.
Banking affects Venezuelans more personally and immediately than oil, telecommunications and other strategic industries in which Mr. Chávez has intervened. The move could backfire if depositors lose faith in the government's ability to protect their savings, and yank their money.
In Venezuela, as in many Latin American nations, mass withdrawals at one bank have a way of snowballing into a systemic bank run that puts the economy and political system in play. Mr. Chávez has firsthand experience with this phenomenon. He came to power on a wave of broad voter discontent rooted in the economic chaos that followed a bank collapse in 1996.
So far, there is little evidence that history is about to repeat itself. But Mr. Chávez appeared to recognize the risks last week, when he dispatched Information Minister Andrés Izarra to reassure depositors. Mr. Izarra said in a prepared statement that the takeover of the local bank, Banco de Venezuela, would be legal and wouldn't jeopardize the bank or the economy. "Our government guarantees the financial strength of the system," he said.
One key question will be whether Mr. Chávez will use the nation's vast oil wealth to acquire more banks. Big international lenders, including Citigroup Inc. and Spain's Banco Bilbao Vizcaya Argentaria SA, also have units in Venezuela. Any further acquisitions might not be received well, observers said.
While in the U.S. the government is seen as a guarantor of bank stability, nationalizations are viewed with deep skepticism in many Latin American nations, where official corruption and incompetence are pressing issues. Many Venezuelans already blame government mismanagement for a host of problems ranging from food shortages to the declining productivity of the oil industry.
"Chávez said the bank's deposits will now be in the government's hands, but the problem is there may be people who think that's not such a good thing," said Alejandro Grisanti, a senior Latin America economist who follows Venezuela at Barclays Capital Inc.
Mr. Chávez announced last week that the government would buy Banco de Venezuela, the nation's third-largest bank in terms of deposits, back from Santander at a "fair" price. The bank was privatized in the 1990s. Santander had been in talks to sell it to a local banking group. After learning of the talks, Mr. Chávez decided Venezuela would buy it, he said.
Santander confirmed that it had been in talks with a private group but was now negotiating a sale to the government.
The Spanish government said Friday that it wouldn't get involved.
The specter of nationalization has loomed over the banking sector, and Banco de Venezuela, in particular, for a long time. Banco de Venezuela has a big network of branches that may be used to more efficiently distribute welfare payments and subsidies. Buying it
fits with Mr. Chávez's strategy of getting more control over government bank accounts.
While Mr. Chávez is taking pains to present the nationalization as a legal purchase of a bank that was already for sale, Venezuela's history of banking crises will make buttressing confidence over the long term a trickier task. The recent experience that Venezuelans have with banking collapses has conditioned them to act faster to pull their deposits when they sense danger.
Gauging public reaction won't be straightforward either. Official data on deposits in the banking system reflecting the period directly after the nationalization announcement won't be available for about two months, analysts said. Other indicators of confidence weren't encouraging. For example, Venezuela's longer-dated bonds fell on the announcement.
Santander is selling at a key moment for the banking system. The government is set to publish a long-awaited revision of bank regulations expected to increase government controls.
Venezuelan banks have been highly profitable under Mr. Chávez, but the operating environment has changed in the past year. The industry was squeezed, for instance, by the government's decision to move deposits from private banks to government banks. Today, 65% of government deposits are in private banks, compared with 80% a year ago.
Meantime, bank executives have privately questioned the quality of some loans that banks hold. Banks are required to dedicate nearly 47% of their loans to politically sensitive areas such as agriculture. What's more, credit-card and commercial lending may have overheated as Venezuelans took on debt as a hedge against 30% inflation rates.
Write to John Lyons at john.lyons@wsj.com
