GBRV NOT TO NATIONALIZE BANCO DE VENEZUELA

C O N F I D E N T I A L CARACAS 000247

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E.O. 12958: DECL: 02/23/2019
TAGS: ECON EFIN VE
SUBJECT: GBRV NOT TO NATIONALIZE BANCO DE VENEZUELA

REF: A. 2008 CARACAS 1061

B. 2008 CARACAS 1135

C. 2008 CARACAS 1690

Classified By: Economic Counselor Darnall Steuart for reasons 1.4 (b)
and (d).


1. (C) Milton Guzman (strictly protect throughout),chief
economist and vice president of Banco de Venezuela (BdV),
told Econoffs February 18 BdV would not be nationalized
despite President Chavez's sensational prior announcement to
that effect. (Note: President Chavez surprised Venezuela's
banking community by announcing his intention to nationalize
BdV, which is owned by the Spanish Grupo Santander, on July
31, 2008 (ref A). While negotiations initially appeared
headed for a rapid conclusion (ref B),they subsequently lost
steam, partly due to the fall in oil prices in the fall of

2008. End note.) Guzman said Santander's CEO told a
visiting group of BdV executives in Madrid in early February
that Government of the Bolivarian Republic of Venezuela
(GBRV) officials had orally told Santander in response to a
January letter that the GBRV was no longer seeking to
purchase BdV. While Santander considered this response
"official," Guzman continued, neither side was likely to
publicly state the negotiations were over. The GBRV would
not want to lose face, and Santander did not want to
embarrass the GBRV. Guzman offered two related reasons for
the GBRV decision: a sharp fall in GBRV revenue and
available funds due to the fall in oil prices and a sense on
the GBRV's part that the opportunity cost of taking over BdV
(in terms of resources and management capacity) was simply
too high.


2. (C) This "non-nationalization" episode comes at a cost to
BdV and Venezuela's economy. Guzman estimated BdV's value
has declined from USD 1.3 billion to 800 million since the
time of the announcement, though part of the decline is
attributable to general economic conditions. While BdV did
not lose market share, it did lose some private clients, with
public sector clients compensating for those losses. Guzman
acknowledged BdV will have its work cut out for it this year
to reclaim its image, both with clients and with employees
concerned about potential GBRV takeover. More broadly, of
course, Chavez's announcement, even if the nationalization
was never carried out, worsened an already difficult
environment for investment.


3. (SBU) Comment: This episode, assuming it is over as
described above, shows the evolving interplay between
political, economic, and bureaucratic factors in GBRV
decision-making. Chavez's initial announcement probably
reflected his sense the announcement itself could help him
politically, his push for greater state control over
strategic industries, and a desire to use BdV's network to
support patronage efforts. He made the announcement in the
month oil prices reached their peak. With oil prices falling
and the GBRV negotiating team pulled in different directions,
negotiations stalled. The GBRV's decision to back out of the
nationalization reflects the reality of low oil prices, with
the lack of public confirmation allowing Chavez not to lose
face. The fact that this episode has hurt BdV and the
Venezuelan economy and will discourage further investment in
the banking sector seems not to concern the GBRV. End
summary.
CAULFIELD