Ailing Spanish bank gets state cash injection

14th July 2011, Comments 0 comments

Spain's struggling Caja Mediterraneo said Thursday it will receive 2.8 billion euros from a state-backed bank restructuring fund, leading to its nationalisation.

The Caja Mediterraneo (CAM) is one of 91 banks in Europe, 25 of them Spanish, facing stress tests on Friday by the EU's banking regulator.

CAM had requested the aid from the state-financed Fund for Orderly Bank Restructuring (FROB) in April in order to meet new banking requirements set by the government, after the failure of a merger with three other savings banks.

The FROB "has confirmed to CAM it provide the pledged financial support of 2.8 billion euros (4.0 billion euros) requested last April 28 as part of its recapitalisation plan," CAM said in a statement.

"Caja Mediterraneo will thus have 5.164 billion euros in capital because it has another 2.364 million euros of its own capital."

Spain's lenders, especially its regional savings banks which account for about half of all lending in the country, have been heavily exposed to bad debt since the collapse of the property sector at the end of 2008.

Moody's agency in April downgraded the credit ratings of CAM by two notches, saying the FROB's recapitalisation plan may fall short of what is needed.

After its nationalisation, the Bank of Spain is expected to sell off CAM, with banking giants Santander and BBVA both mentioned as possible buyers in the Spanish media.

Under new government regulations, the banks must raise the proportion of core capital they hold to 8.0 percent of total assets from the current six percent, or to 10 percent if they are not listed on the stock exchange.

Investors showed deep concern when the FROB iteself only managed to raise 1.75 billion euros in a bond auction last week, falling short of a 2.0-billion-euro target.

CAM, based in the eastern coastal region of Alicante which was one of the worst hit by the collapse of Spain's property bubble, had been set to merge with three other savings banks but the deal fell through earlier this year.

© 2011 AFP

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