Four regional Spanish savings banks finalise alliance

Four Spanish regional savings banks said Tuesday they had finalised plans to form an alliance to weather the country’s uncertain economic outlook sparked by the collapse of a property boom.

Caja Mediterraneo, Cajastur, Caja Extremadura and Caja Cantabria will keep their own brands, balance sheet and work forces under their tie-up but a single management will monitor solvency and liquidity centrally.

The four banks announced last month that they planned to join forces under a so-called “cold fusion” or “virtual” merger in the latest in a series of mergers and co-operation agreements promoted by Spain’s central bank to restructure the country’s financial sector.

In a statement issued Tuesday, they said they would seek 1.49 billion euros (1.83 billion euros) from the Fund for Orderly Bank Restructuring (FROB) set up by the government last June to facilitate mergers and encourage strong banks to help weaker rivals.

The Bank of Spain said any money from the fund — which has up to 99 billion euros and expires June 30 — could be granted only in exchange for restructuring and deep cost cuts by the lenders concerned.

Spanish banks got off relatively lightly from the global credit crunch in 2008 as the country’s strict rules meant they did not invest heavily in the high-risk US home loans that hurt financial institutions elsewhere.

But many of Spain’s 45 regional savings banks, many of which are controlled by regional politicians, have been badly exposed to bad debt following the collapse of the property sector at the end of 2008.

The Spanish government has encouraged their consolidation in order to maintain liquidity.

The Bank of Spain’s proposal to tighten rules on provisions the lenders have to make against real estate on their balance sheets has added to pressure on regional savings banks to merge.

Spain’s regional savings banks account for half of the country’s total lending and ensuring their financial health is seen as key to helping the Spanish economy rebound from its worst recession in decades.

On Monday, seven regional savings banks announced a similar alliance.