El Molino and the Global Financial System

Avinguda Paral·lel is one of the main streets of the city of Barcelona, dividing the Ciutat Vella, Eixample and Sants-Montjuïc districts. It receives this name because it is (unlike any other street in Barcelona) parallel to the Equator.  It runs from Plaça d'Espanya, where the city’s exhibition halls are located, to the seafront, Plaça de la Carbonera, and the passenger ship port, dividing the neighbourhood of Poble Sec (on the side of Montjuïc) from the neighbourhoods of Sant Antoni and El Raval. It was officially inaugurated on October 11th, 1894.

Wall Street and 'Europe’s theatre street'

Over time, the term 'Wall Street' has become a metonymy for the financial markets of the US as a whole. Just as Wall Street is most known for being the American financial sector (even if financial firms are not physically located there), Avinguda Paral·lel is most known for its theatres, as well as cabarets and erotic shows from the beginning of the 20th century. It was known as 'Europe’s theatre street' at the core of Barcelona’s nightlife.

Wall Street is the home of the New York Stock Exchange, the world’s largest stock exchange by market capitalisation, and the Paral.lel is the home of El Molino. This was once one of the city’s most renowned cabarets, one of the most famous in Europe during the 20th century.

As is currently happening with the banking sector, El Molino has always been considered a space that transgresses the allowable limits; a space where one is able to escape the strictures of the time.

The decay

In the last two decades, the importance of El Molino has diminished greatly. We can perfectly see the correlation between that cabaret and the situation of the most important US banks during the last financial crisis.

The bursting of the US housing bubble, which peaked in 2006, caused the values of securities tied to US real state to plummet, damaging financial institutions globally. Like Merrill Lynch and Lehman Brothers, once two of the best investment banks in the world, El Molino was once one of the city’s most renowned businesses and one of the most popular in Europe... even if the cash was flying in a different way.

Unfortunately, in November 1997 the cabaret had to close its doors, 10 years before the investment bank Merrill Lynch announced it would write-down $8.4 billion in losses associated with the national housing crisis. Meanwhile, Lehman Brothers declared bankruptcy in 2008.

The return

Nevertheless, a few years later the two sectors are living in better situations. In 2008, Bank of America purchased Merrill Lynch, and in October 2010, the new El Molino once again opened its doors (following a €12 million refit) with the show, Made in Parallel.

Nowadays, Merrill Lynch is the investment banking division and wealth management and division of Bank of America. With over 15,000 financial advisors and $2.2 trillion in client assets, it is the world’s largest brokerage. At Global Trader Investments we expect a brilliant future for the bank, one of our favourite companies to invest in, if the world’s economy can finally recover from the crisis, the worst financial crisis since the Great Depression of the Thirties.

Bank of America is an example of sector recovery. There are two factors holding the company:

The first is litigation risk. Since the financial crisis, the bank has paid tens of billions of dollars to settle lawsuits related principally to the origination of faulty mortgages.

The second factor is costs. The principal operational culprit behind the bank’s uninspiring profitability is its mortgage-servicing division. Thanks to higher regulatory requirements and lower-quality mortgages, Bank of America has found itself throwing money in this direction. Thus, the faster it can shrink the affiliated operations, the better. And that’s exactly what Bank of America has done, reducing the size of its mortgage-servicing portfolio by nearly 30 percent on a year-over-year basis.

Today, as with the global financial system, Avinguda Paral·lel is trying to reach better times. We have clear examples of big bets that are being made to revitalise the area: El Molino has reopened, Sala Apolo continues to be a leading concert hall in the city, but above all we see that great personalities are betting big on it. Several restaurants have decided to settle there, expecting a promising future. It’s the case of Ferran and Albert Adrià’s Tickets restaurant—the Adrià brothers are bringing to the city the best recipes from the world-famous but now closed El Bulli, once run by Ferran Adrià.

What happened in Wall Street has a strong resemblance to what is happening in Barcelona's Avinguda Paral·lel. Hopefully in both cases the transgression will not exceed the ethical limits allowed. I personally think that a bright future is awaiting.

Lluís Cònsul is the founder of Global Trader Investments, Ltd. He is an Independent Financial Analyst, Private Investment Manager and Blogger (click here to read his blog). He is a Graduate of Business Administration and Management, and PDD by IESE, and he is a Stock and Futures market expert across Europe, Asia and the US.

The views and opinions expressed above reflect those of the author. They are not intended as financial advice from Metropolitan nor do they necessarily express the views of the publisher.