Spain Said to Plan Savings Bank Bailout to Aid Merger
News Article Date: Tuesday 30th of November 1999
Spain’s government is preparing to help bail out regional savings bank Caja Castilla La Mancha to pave the way for a merger with larger Unicaja, two people familiar with the talks said.
The government and deposit insurance agency may need to spend as much as 2.7 billion euros ($3.4 billion) to make the combination of Cuenca-based CCM and Malaga-based Unicaja possible, said the people who declined to be identified because the talks are confidential. Yesterday, the newspaper El Pais reported that the amount would be as much as 1 billion euros.
As Spain’s economy pitches into its worst recession in half a century, the proportion of bad loans held by the nation’s lenders has more than tripled to its highest level since 1997. Rising defaults by developers and homeowners may spark industry consolidation, with banks vulnerable to Spain’s bursting property bubble merging with stronger lenders.
“This could be the first of perhaps many similar events at the savings banks,” said Daragh Quinn, a banking analyst at Nomura Securities in Madrid. “Obviously, CCM isn’t that big, but if bigger banks have similar problems then probably the government would have to get involved in a major way.”
A spokesman for the government of Prime Minister Jose Luis Rodriguez Zapatero declined to comment. An Economy Ministry spokeswoman also declined to comment.
Last month, Bank of Spain Governor Miguel Angel Fernandez Ordonez said it wouldn’t be “prudent” to rule out recapitalizing Spanish banks.
Deposit Insurance Fund
The deposit insurance fund, financed by contributions from banks, could “play an important role” in restructuring operations if the situation arises, Ordonez told lawmakers Feb. 25 in Madrid.
The comments came two days after Finance Minister Pedro Solbes said authorities should be “prepared for intervention,” and Francisco Gonzalez, chairman of Banco Bilbao Vizcaya Argentaria SA, Spain’s second-biggest bank, raised the prospect of state bailouts.
According to Angel Alvarez, financial director of the deposit insurance agency, there is no limit to bailouts from the agency, though “reasonable limits” would be decided by the board. The fund can go into deficit and issue debt just like any other entity, he added.
He declined to comment specifically on CCM. A spokeswoman for Unicaja declined to comment. A secretary at CCM said the bank’s spokesman wasn’t available to comment.
To date, Spain hasn’t injected capital into its banks as other European governments have, and instead has relied on measures to support liquidity.
The government has bought almost 20 billion euros of illiquid assets such as mortgage-backed securities from banks. In coordination with its European neighbors, Spain has offered to guarantee as much as 200 billion euros of new debt for banks.
CCM had assets of 26.8 billion euros at the end of September, and Unicaja assets of 32.3 billion euros.
In February, Fitch lowered CCM’s debt rating three levels to junk. The rating company said CCM, which made 44 percent of its loans to builders and real estate companies, may need a government bailout or merger given its exposure to the “sharp ongoing adjustment” in Spain’s economy and property industry.
Standard & Poor’s this week cut the outlook on the debt ratings of Banco Santander SA and BBVA, Spain’s biggest lenders, to “negative” from “stable” as the economic slump threatens profits. S&P affirmed the banks’ AA long-term debt ratings.
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