Fitch downgrades troubled Spanish savings bank CAM

1st April 2011, Comments 0 comments

Ratings agency Fitch downgraded the ratings of Spain's Caja Mediterraneo (CAM) by a notch on Friday after the troubled savings bank's planned merger with three others collapsed.

Cajastur, Caja de Extremadura and Caja de Cantabria voted on Wednesday against completing a merger with CAM to create Banco Base, which would have been the third-largest savings bank in terms of assets.

It was the first broken-off engagement in the savings bank sector since a wave of consolidations in 2010 cut the number of institutions from 45 to just 14.

Fitch said it has trimmed CAM's long term debt rating to "BB+" from "BBB+" with a stable outlook and the short-term rating to "B" from "F2" in the wake of the failed merger.

"The rating actions follow the break-up of the integration plan for these savings banks or 'cajas' to form a mutual cross-support scheme," it said in a statement.

"The downgrade of CAM's Individual Rating reflects that the caja will require external support as a result of low capital levels in the context of asset quality deterioration and the Bank of Spain's more stringent capital requirements."

Fitch said CAM faced a substantial decline in operating profitability in 2011, mainly due to the narrowing of its net interest margin.

It also expects the savings bank to continue to face "funding pressures" since Spain's heavily indebted savings banks' access to wholesale interbank markets has been constrained.

The CAM decided on Thursday to seek aid from the state-financed Fund for Orderly Bank Restructuring (FROB) in order to meet new banking requirements set by the government after the failure of its merger.

Earlier Friday business daily El Economista reported that Spanish banking giant Santander could take over CAM following the failure of its planned merger.

It said the Bank of Spain is planning a "mini-auction" of the CAM for the big Spanish banks, among which Santander, the eurozone's largest bank by market capitalisation, "is the big favorite, followed closely by BBVA," the country's second largest bank.

© 2011 AFP

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