Rescue of savings bank seen adding to Spain’s fiscal burden
The rescue of regional savings bank CajaSur, taken over by the Bank of Spain at the weekend, could cost up to 2.7 billion euros, a newspaper reported Monday, adding to the burden on Spain's already strained public finances.
Business daily Expansion said the amount could be needed under the most pessimistic scenario to clean up the bank’s 1.5 billion euros (1.85 billion dollars) in doubtful debt and make up for 364 million euros in irrecoverable credits and the depreciation of property assets.
A Bank of Spain spokesman would not confirm the figure but said the unlisted bank, formerly controlled by the Roman Catholic Church and headed by a priest, would receive an injection of “at least” 523 million euros (657 million dollars).
That would be the “legal minimum” amount to ensure its financial stability, he told AFP.
CajaSur, which accounts for 0.6 percent of the assets of the Spanish banking industry, lost 596 million euros last year and 114 million euros in the first quarter of 2010.
The Bank of Spain on Saturday replaced CajaSur’s managers with representatives from its Fund for Orderly Bank Reconstruction (FROB) after the Cordoba-based bank refused to merge with Unicaja, a larger, profitable savings bank in based Malaga. CajaSur and Unicaja had been in merger talks since July.
The injection of cash CajaSur will receive from the Bank of Spain will come from the FROB, which was set up by the government in June 2009 after the central bank was forced to take over the running of savings bank Caja Castilla de la Mancha in Spain’s first major bank rescue in 16 years.
The rescue fund, made up of public money and other existing bank support funds, was capitalised initially with nine billion euros which can be increased ten-fold if necessary to help struggling banks merge or restructure.
Finance Minister Elena Salgado said the government did not have an estimate for how much the rescue of CajaSur will ultimately cost, saying only that it was up to the managers appointed by the Bank of Spain to make an evaluation.
But she said CajaSur, which has 486 branches and assets of 19 billion euros, would be sold at auction “in a relatively short time” in a “competitive process” to ensure that the rescue operation “has the lowest possible cost to taxpayers.”
“Our financial system is absolutely solvent. You can’t say it is at risk because of an institution as small as CajaSur. But obviously it was important to send a signal of strength, of control, of solvency,” she told news radio Cadena Ser.
The rescue of CajaSur comes as the government is introducing a fresh round of austerity measures aimed at bringing the public deficit down to a euro zone limit of three percent of gross domestic product from 11.2 percent last year.
Spanish banks got off relatively lightly from the subprime mortgage crisis in 2008 as the country’s strict regulations meant they did not invest heavily in the high-risk loans that hurt financial institutions elsewhere.
But many, especially smaller unlisted saving banks like CajaSur that are usually controlled by regional politicians, were badly hit by the collapse of the country’s once-booming property market in late 2008, both through loans to developers and mortgages.
In November Bank of Spain governor Miguel Fernandez Ordonez said a third of Spain 45 regional savings banks would have to merge with stronger institutions in order to survive.
Goldman Sachs warned Monday that the restructuring of Spain’s regional savings banks, which account for 40 percent of the total assets of the country’s banking sector, remains slow.