Moody's welcomes Spain banking upheaval

7th February 2011, Comments 0 comments

Credit rating agency Moody's welcomed Monday plans by several bad debt-laden Spanish savings banks to merge their assets in private banks, part of a major industry upheaval.

The shake-up will improve the banks' credit standing by diversifying collateral, easing fundraising, and simplifying the funding structure," Moody's Investors Service said in a report.

"Transparency will also be improved," said the report by Moody's senior analyst Alberto Postigo and senior vice president Jose de Leon.

Spain's regional banks account for about half of all lending and are considered the financial system's Achilles heel, holding a slew of loans that turned sour when the property boom collapsed.

Madrid has pressured the savings banks to tap private capital, announcing tough new rules on the levels of rock solid core capital they most hold on their balance sheets.

The government reserved the most stringent capital requirements for unlisted entities, prodding savings banks to announce plans to list shares on the stock market:

-- January 28: Major savings bank La Caixa announces a back-door listing on the stock market of its 9.48-billion-euro ($13.0 billion) retail banking activities. It plans to move the retail operations into its listed investment arm Criteria, which is to be re-born as CaixaBank.

-- January 31: Banco Financiero y de Ahorros says it will list its shares so as to comply with the new capital requirements. The bank was born January 3 from the merger of seven savings banks including the country's oldest, Caja Madrid.

-- Feburary 1: Another Spanish savings bank group says it will create a full-blown commercial bank that can tap the stock market if needed to meet new government solvency requirements. Caixa d'Estalvis del Penedes, Caixa Geral de Ahorros de Granada, Caja de Ahorros de Murcia and Sa Nostra Caixa de Balears say they will move their retail banking operations into a new bank, Banco Mare Nostrum.

Moody's said it believed it was "very likely" that two other merged savings bank entities -- Caja 3 and Banca Civica -- would follow suit.

The Bank of Spain has asked all 17 of the country's fragile regional savings banks, which account for about half of all lenders, to supply it with details of their exposure to the collapsed real estate market.

Unsurprisingly, the savings banks held far more risky assets than the main banks, based on a calculation of the figures last week by AFP.

The nation's seven main banks held 45 billion euros ($61 billion) in risky assets and the 15 of the savings banks that have so far published their figures had around double that, or 90 billion euros.

© 2011 AFP

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