Seven Spanish savings banks agree alliance

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Seven Spanish regional savings banks announced Monday they have approved plans for an alliance that will help them survive the country's uncertain economic outlook.

The tie-up would be a so-called "cold fusion" or "virtual" merger where each bank would keep its own brand, balance sheet and legal structure but monitor solvency and liquidity centrally under a single management.

It will create the country's biggest savings bank by assets, surpassing Barcelona-based La Caixa.

The boards of Caja Madrid -- the country's second largest savings bank by assets -- Bancaja, the third biggest, Caja Insular de Ahorros de Canarias, Caixa Laietana, Caja de Avila, Caja Segovia and Caja Rioja all approved the move.

Caja Madrid said the groups will request 4.47 billion euros (5.47 billion dollars) from a state bailout fund known as the FROB, set up last year to help shore up the country's weaker banks with an initial capitalisation of nine billion euros.

Global financial markets have recently turned the spotlight on Spanish banks in the wake of the Greek debt crisis, which has raised fears that Madrid may also need an international rescue package like the one Athens received.

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.

The approach of a June 30 deadline to tap the FROB has also acted as a catalyst.

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.

© 2010 AFP

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