Congratulations for 30 years, and above all, congratulations for being who you are and for having practiced journalism all these years in a different, honorable, and human way. The truth is that whenever I've had to speak with you, I've noticed something different, right? So, I think that is important to recognize, and that is one of the reasons I am here, because I believe you have to stand up for people who do things differently than how they are usually done. The truth is, you have asked me to tell three anecdotes or three examples of application to daily management of, let's say, principles emanating or flowing from your Christian condition. And I was thinking in the taxi about what to use, and well, I have it more or less clear, and I'm going to give you three examples. There is much modesty in talking about these things, a lot, because Matthew 6:3 says 'Do not let your left hand know what your right hand is doing.' And normally, no Christian likes to brag, as José Mota would say, about how he did this or that, whether he did it because he was a very good Christian or a very bad Christian. I think it is quite special to have to talk about this kind of thing, especially in a public forum. But well, I am above all an accountant, as you defined Rubén earlier. I like that I see there is quite a dignification of the accountant here because Héctor is also another accountant, Rubén is an accountant. I don't know if you started as an accountant or already in investment banking. You would have started in investment banking. And in the end, accountants are also children of God, and it's also very good to have been an accountant at some point in your life because if you know that debit must balance with credit and income with expenses, you have learned a lot for the rest of your life. In fact, that usually disqualifies you from being a politician, but it's very good because it helps you be a much better manager.
Thinking of anecdotes that could be told without too much embarrassment, I recall, for example, that while making the business plan for the year 2006, I worked in a large bank, a multinational bank, and I was doing real estate investment. We did what is called principal, which is different from advisory, which consists of buying things and then being responsible for your actions. That is, your performance is measured on what you bought, and if it goes well they keep you, and if it goes badly they fire you, basically. So I did that, principal investment, I had been doing it since, well, 1996, when you founded the newspaper, I was still in short pants at that time. And while making the business plan for 2006, a dilemma came up, right? And the dilemma was very simple. What I saw was a real estate sector in Spain where prices had already completely disconnected from the average purchasing power of families. The average indebtedness of the sector measured as loan-to-value was 72%. They had started to create pyramidal structures so that the 28% equity that accompanied that 72% was actually also borrowed, also obtained from the banking system or wherever. And on the other hand, I saw that developers were starting to see sales slow down, and then the scissors effect is immediate. If you are building like crazy and your sales, your pre-sales start to slow down, it's a matter of minutes before disaster strikes. That was what I saw. But what I heard looking around was that Spain was the earthly paradise and where everyone had to invest. And I had to decide with what investment thesis I would present to my 2006 business plan, and I decided to present with the one I considered correct. I arrived there in London, and I said, 'Look, this Spain is tighter than Pamela Anderson's corset, and I think it's going to explode so hard that pieces will reach China. So what we have to do here is unwind all the positions we have, especially those that are leveraged. In the German open-ended funds, since they have zero leverage, we stay. In the end, if the asset's return falls, your passing yield falls a little, but nothing else happens. But in everything that is leveraged, watch out, because tough times may come.' Well, my boss David Brush, an American guy from Brooklyn, but of Irish origin, his grandmother was Irish and Catholic, Christian. His grandmother, by the way, was called Dolores, right? The Lords, Dolores. And that brings me some reflection on the Spanish Trail in Ireland and the Spanish roots of Irish Christianity. So this man, a deeply human guy, said to me, 'Hey, I've been reading this, and this is very brave, but I have to warn you of two things, in case you want to reformulate. First, contradicting an investment committee is sometimes not a good idea. And everyone has decided that Spain is fucking great, and you come and say no, being Spanish, so maybe, believe it or not, the majority will run you over and leave you stuck to the floor like a piece of gum. Even if you are right and the majority is not. And second, making this decision will lead to if it is approved, all these assets will be sold, and lacking assets, before long, one day they will fire you.' I said, 'Man, David, that won't be the case.' And he said, 'Yes, because as years go by, the guys who were with you, who knew why this decision was made, will no longer be there. But who will still be there is Mini, and at some point he will write a report saying, if we don't have assets in Spain, why do we have guys? We have to fire the guys, and it will cost you your job.' And I said, 'Damn, David, you make it difficult for me, but despite that, hey, I maintain my decision. What I see is this, and therefore I believe that, attending to my fiduciary duty to try to minimize any negative consequences that the fund investors might suffer, we have to cut our losses.' And so we did, and we cut our losses. Then in all the years when there was bullfighting here, we were in the stands, calmly, we were not in the ring. So that went very well.
But fast forward to 2012. Spain is now Indian territory. They are going to kick us out of the European Union, they are going to kick us out of the Monetary Union, we are going to leave the euro and go back to the peseta. No one wants to come to Spain. However, what I saw was that since the government change in 2011, there had begun to be a certain liquidity in Spanish debt auctions, which had even been left deserted many times, which was the reason why the government had to be changed in those years. There was a bit of liquidity again in Spanish debt auctions, and I thought that the re-liquification of the sector was near, which later occurred in 2013 and 2014 as a consequence of the reviled vulture funds, those so hateful and so on, which brought the re-liquification back to the Spanish real estate cycle that was in tatters. Spain was a dung heap in those years, and thanks to vulture funds, things started working again. So in that environment, Mini issued his report and said, 'Damn, if we have two Managing Directors in Spain and very few assets, obviously something has to be done.' Then they called me to London, and I remember it was September 1st, I was still with my toes red from the flip-flop stick, and I arrive there and they tell me the story. And how do they tell you? They tell you just like they told Jesus Christ: 'If you worship me, all that you see will be yours.' And it was at that moment when I said, 'And what do I do now? Do I tell this guy that it doesn't come from within me to hurt this team, and that I will not follow his orders, or do I not tell him?' Well, I have to tell him. So I said, 'Look, no, I think this is all wrong. Our cost-to-income ratio is 30%, 70% of our money is being taken by the organization, and to lower it from 30% to 22%, that is, to improve by 8 points, why don't you start with the United States, which has a cost-to-income ratio of 210% and 44 managing directors, so fire 10 from there and you improve a bit.' 'No, because that is a strategic market, but Spain is not.' And I said, 'Okay, that seems fucking great to me, I'm going home.' And I went home. Then I had to tell my wife at night, and it was difficult, of course, because everyone likes a paycheck, logically, and me too. And my mother, the poor thing, also cried like a Magdalene, 'My son, you were doing so well,' and so on. My kids were pissed because I had lost my rental van, where I played their military marches. Damn it. Total, a disaster, a disaster. But I did what I believed I had to do. And by the way, I encountered an extraordinary display of gallantry from my own colleagues, because when they were presented with the derivative of 'Worship me, all that is here will be yours,' at that time when society was still eminently analog, they gave the bank a digital response and they all went home, leaving me alone with children, and I had to start from zero and fend for ourselves and set up something completely different from literally zero. And well, when everything was working and going great, fast forward, third situation.
Fast forward to the third situation. For example, COVID arrives, to put a more recent situation. And of course, the mess starts in March 2020. We sit down to see what to do. The first part of the reaction is a reaction by training. A pandemic comes, you haven't studied that in college, you have no idea what's going to happen, and there you notice the solitude, the solitude of the manager. When you are a damn manager and everyone expects answers from you, you don't always have them. So what do you do? Pray, sleep little at night, and ask God for discernment. 'Help me understand what is happening and to make the decisions that correspond.' God doesn't always take the trouble to speak to you directly like that. So you think it's not working, but it does work. So, since you have received university training and you know more or less how to do things from an orthodox point of view of the tribe of accountants, first you grab and boom, you draw down all the financing lines and sit on a pile of liquidity. At least you won't die from lack of liquidity. Second, you start reviewing all expenses and cutting everything that is not essential. Third, you talk to the staff and say, 'Hey, there is a solution. Either we start laying people off, or we all reduce our salaries by half.' Fortunately, in a modern company like ours, with a high degree of variable compensation, it's very easy. You just load the bonuses and screw them. If it had been a company with very high fixed salaries, it would have been impossible and we would have had to resort to layoffs. As for capex, everything that is immediately revenue-generating you maintain. What is not immediately revenue-generating is put on hold until the storm passes. You do a series of things that are from training, from knowledge. But then you have to start making decisions that are alpha decisions, from inspiration.
And among those alpha decisions, I remember on March 19th, the question was raised, 'Hey, what do we do? Because we are going to start having lawsuits with everyone over income from assets, because a lot of people are going to default and won't be able to pay.' I said, 'Well, we have to adopt a solution of moral order, right? It is to categorize the assets and think about which are winners. Logistics was clearly a winner in COVID. Offices neutral, that is, the effective headquarters of a company. That effective headquarters, whether the company goes well or badly, the company has to be managed anyway. Therefore, the payment for the use of that effective headquarters must occur, and if we have to litigate, we litigate, we will not allow it. The truth is, no one disputed it, some venture capital fund, and of course we slammed them in court and they didn't win a single ruling. But in shopping centers, the situation was different because that is where income is generated. So if the guy where income is generated is forced to close by the state, he doesn't generate income. So if he doesn't generate income, how is he going to pay me? So there was the solution that everyone said, there is always someone on the committee who says, 'Damn, we finance them, we charge them a comfortable interest rate, and in a few years when they improve, they pay us back.' And another solution was, 'No, we forgive them.' Let's see, the CFO, who fortunately is another guy who also studied at the Jesuits, I said, 'How are we on the balance sheet?' He said, 'Well, now after drawing down all the lines, we are in great shape. We have liquidity up to the rafters, eight bathrooms.' Okay, so what do we do? Well, nothing, we absorb that loss ourselves, and we simply forgive these guys the rent. We forgive them, we don't finance them. Done.
Of course, after that you have to go tell the board of directors. Well, you will be surprised to know that on the board of directors, even though some tensions with some shareholders were beginning to appear, the support was unanimous. And I have to thank Santander and Nortia for understanding it perfectly and saying, 'No, this is correct, this is what has to be done, from a moral point of view this is what has to be done.' And therefore, you have our full support. The first year, that joke cost us 71 million. I have it here. The second year, 44 million, and the third year, 11 million. That is, we put over a hundred million less in revenue, which was a transfer of non-wealth, because unfortunately they were not generating anything and also suffered severe consequences from COVID. But we helped them with that amount. Then it went to the General Shareholders' Meeting, and there I could have been sent home. Because at the end of the day, it is an assumption of a loss to help society, which a company may or may not have to assume. I understood that yes, but my illustrious shareholders, especially the Anglo-Saxon ones, could have understood that no, and they could have sent me home. That was not the case. They also supported the board's decision, and I never had problems for doing that. So sometimes, well, I think that trying to do things according to a moral order, not even Christian or anything, but as you believe is correct, well, it has a reward, and one can allow oneself to be, as Father Arrupe said, men and women for others, right? You have to try to help the social environment in which you live without that being an obstacle to your goal of earning money for your shareholders.
