Published 17 March 2021 by Audra Walton
Edward O’Loghlen began his role as Head of IR at CaixaBank 10 years ago, in the wake of the financial crisis and on the eve of a monumental transaction. There was no IR team—it had to be built, and the daunting challenges facing banks at the time, particularly Spanish banks, had to be proactively addressed.
But things didn’t settle down after that ground-breaking reverse IPO transaction. In 2012 CaixaBank merged with Banca Cívica, creating the largest domestic bank in Spain at the time. They then bought the nationalised bank, Banco de Valencia, Barclays’ retail banking subsidiary in Spain. And more recently, CaixaBank and Bankia have announced a merger (due to be completed soon) that will create the biggest domestic bank in Spain with assets of more than €650bn.
Mergers have been a necessity in recent years for European banks as they battle negative interest rates. The number of banks in Spain has contracted from 55 to 12 since the 2008 financial crisis, and regulators have continued to advocate, and even incentivise, consolidation as a means of lowering costs and improving efficiency.
Over this same period, ESG pressures on issuers have exploded—putting a spotlight on banks in particular: Do they
have investments in controversial sectors? Are they funding renewable energy projects? The expectation for banks to choose the right moral path, after a history of often not having done so, is now palpable.
In our second Breakfast with CMi2i interview, we ask Edward about what he has learned in this fascinating and busy decade, his outlook on banking, where ESG success stems from, and the true role of IR.
Eddie – CaixaBank office in Barcelona
CMi2i interviewer – CMi2i office in London
Eddie – pan con tomate y jamón serrano (tomato bread with Spanish cured ham) and fresh fruit juice
CMi2i interviewer – smoothie with protein powder, courgette, spinach, carrots, celery and avocado
Given the SDFR (Sustainable Finance Disclosure Regulation) is coming into effect today, March 10th, it seems only logical to start the conversation with ESG. CaixaBank has excellent ESG ratings, is included on multiple key ESG indices (it has been for years), and this year found itself winning a silver place in the S&P Global’s Sustainability Yearbook, displacing BBVA. But CaixaBank’s key peers are no laggards in ESG, making the competition for capital potentially tougher than it would be in a group with more disparity.
I wonder how you build a bank with a genuine conscience, assuming CaixaBank’s is indeed genuine. And I wonder where the real impetus for implementing ESG measures comes from—is it regulatory bodies? Or shareholders?
“The truth is ESG pressure now comes from everywhere. And I think there is a lot of confusion about what it means. As you know it is an acronym for three very different things and lately it has been combined into mainly the ‘E’, and specifically issues around climate change,” he says.
“Investment managers are feeling pressure from the regulatory side with SFDR, and this has an impact on issuers as they attempt to stay ‘green’ enough to maintain and attract investment. Issuers are also now faced with non-financial disclosure, and everyone will have to communicate the risks and impacts of investments as required by the EU Taxonomy. The EU is really a leader in this respect—there is a lot of legislation coming our way that will likely set the tone for what the rest of the world does.”
I agree, the EU really does seem way ahead.
He continues, “For an issuer, it helps if you aren’t having to go from 0 to 100 overnight. CaixaBank for example was born as a non-profit in 1904 with the idea that if we could help the working class save for the long term, they would align their interests with capitalists and entrepreneurs themselves. Essentially, we were set up as an institution with a social function—that of incentivising working-class long-term savings. So the ‘S’ really is at the heart of our organisation, and has been long before ESG came to the forefront. The ‘E’ was also important to our management well before there was industry-wide pressure to make substantive changes. So we didn’t get to where we are today in a few short years, it has been embedded in our culture for a long time.”
I mention reading somewhere that CaixaBank was the first listed bank in Spain to offset all its CO2 emissions.
“Yes that is true. We take climate change seriously,” he says in a very matter a fact way. There is no sense of making a case in his voice. He is a merely relaying facts, with that being a fact.
But what is interesting to me is that this bank seems to be taking climate change seriously without public shareholder pressure. Pressures may be coming from everywhere, but pressure from activist investors doesn’t seem to be one CaixaBank is currently having to contend with. They don’t have the issues that HSBC, or other banks, have recently faced with investor pressure to create environmental plans and targets.
“We don’t take the support of our shareholder base for granted, and an activist can buy your stock at any time. This is why we do regular forensic shareholder identification—we want to know who our shareholders are so that we can communicate to them about these topics,” Edward responds.
I then wonder how a bank can really, truly embrace ESG when it is often at odds with the central tenets of a profit-making, and free market economy. For example, how do banks balance the urgent requirement to finance clean technologies with the fact they may be loss making for a long time, or fail completely?
He answers, “The Central Bank, which is our supervisor, is now taking a more proactive stance on questions like that, which is unusual for a central bank. For example, we are starting to see capital constraints or penalties for lending to some industries, and capital incentives for lending to other industries, which all contribute to an element of market distortion. For me there is a question as to what degree the central bank should be doing that instead of the government, through taxation for example, or carbon pricing. But regardless of who does it, banks will need to work within those incentives and constraints.”
I think he may want a coffee.
“No coffee. I’ve given up on stimulants. No tea, no coffee for over a year,” he says.
I smile and silently admire this. For every up there is a down—but not for him, not today.
On to other subjects…
“You are about to complete a merger with Bankia which will create the biggest domestic bank in Spain with a balance-sheet of €650 billion. For other Heads of IR who may not have been through a big merger before, what have you learned?” I ask.
He considers his answer for a moment. “The first thing is to make sure you do your job properly so that you are on the acquiring side (he jokes). Apart from that, read the information the other company produces—even if it takes a long time. Try to keep the sell-side analysts interested so that you don’t lose sell-side coverage. And think about the larger outcome—what will this new company look like in the future?”
Edward has seen several big transactions in his time at CaixaBank, which no doubt each brought its own set of challenges and changes for the organisation. I wonder what else has changed since he first began as the Head of Investor Relations 10 years ago? If the challenges are broadly the same now as they were then.
“One change I have certainly noticed is technology. There are many more quant funds and algos, and now there are market movements that are simply inexplicable. Also, this used to be a very people-focused business, but now we are being analysed by AI, not people. For example, there is software that says it can determine whether management is optimistic or pessimistic by analysing their voice on an earnings call,” he replies.
“The sector has changed a lot as well,” he continues. “The financial sector used to be one of the mega sectors along with TMT. But it isn’t as big anymore, and as a result coverage has reduced. Many generalist investors have chosen not to have banks in their portfolios over the past 10 years, whereas previously that was inconceivable. Also, big government is back, and Central Bank intervention is increasing. The pandemic has accelerated this, as it has a lot of these trends,” he says.
“The world has changed a lot in 10 years, and so has IR.”
I then begin to wonder about the change he and his team affect, rather than the change they experience.
“Investor Relations isn’t a driver of change. We are an enabler; we are a tool. The way we affect change is by educating the market about the company, minimising information asymmetry, and making sure management is exposed to the market. One of the things I like about my job is that internal politics are irrelevant when you are speaking to investors. Meetings with investors are refreshing—there is no fear of speaking truth to power. If investors think you are doing something wrong, they will point it out. And that is one of the reasons C-suite execs like to speak to investors. It is where they get their honest feedback,” he explains.
“What do you like to do in your free time?” I ask.
“I like to exercise. Apart from that, I like to ride motorbikes,” he replies.
I ask him what motivates him.
“Learning. The ability to learn. A constantly changing environment is a big driver for me.”
“If you were not doing this, what would you do?” I ask, not able to remotely guess what his answer might be.
“I’ve been in banking all my life in many different roles. If I could do anything, I would probably still do this. It is a great sector to be in because you never stop learning.”
Written by Audra Walton
CMi2i, the world’s leading forensic capital markets intelligence firm, specialises in the world’s most accurate Equity & Debtholder identification service and supports issuers and their advisors with investor relations, M&A, virtual AGMs/EGMs, shareholder activism, capital restructuring and reputation management goals. The company has supported more than 1000 corporate transactions, and has over 500 clients worldwide.