Troubled Spanish savings bank agrees to merge with larger peer

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Troubled Spanish savings bank Caixa Girona agreed Monday to merge with Spain's largest savings bank, La Caixa, in the latest merger aimed at shoring up the nation's weaker banks.

The board of Caixa Girona unanimously approved the merger with La Caixa, its president Manel Serra told reporters.

The two banks, which are both based in Spain's wealthy northeastern region of Catalonia, announced last week that they were in merger talks.

Earlier this month international ratings agency Fitch downgraded Caixa Girona to BBB from BBB+, citing the impact of the weak economy and the collapse of a property bubble on its asset quality.

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 that are usually controlled by regional politicians, were badly hit by the collapse of the country's once-booming property market, both through loans to developers and mortgages.

The Bank of Spain has called for consolidation by regional savings banks if they are to survive the economic crisis, and several such mergers have taken place or are being negotiated.

Earlier this month the central bank took control of one troubled savings bank, CajaSur, after it failed to complete a planned merger with another bank.

© 2010 AFP

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