Moody’s downgrades troubled Spanish savings bank CAM

Moody’s downgraded the credit ratings of Spain’s Caja Mediterraneo (CAM) by two notches on Tuesday, saying its recapitalisation plan may fall short of what is needed.

Earlier this month, the bank said it would seek 2.8 billion euros ($4 billion) from the FROB state-backed bank restructuring fund in order to meet tough new capital requirements set by the government.

“The FROB’s funds may not be sufficient to fully cover all the expected losses embedded in CAM’s balance sheet, as envisaged under Moody’s own scenario analysis,” the ratings agency said in a statement.

“In other words, given Spain’s uncertain economic outlook and the uncertainties within the real-estate sector, the rating agency believes that the FROB’s recapitalisation may not sufficiently protect CAM against a more conservative loss scenario.

“Furthermore, Moody’s expects that internal capital generation from recurrent sources may be limited by the very challenging domestic operating environment of subdued growth, downward margin pressures and ongoing provision requirements.”

As a result, the ratings agency cut its ratings of CAM’s senior debt and deposits ratings to Ba1 from Baa2.

Another ratings agency, Fitch, on April 1 cut CAM’s long term debt rating to BB+ from BBB+.

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.

The savings banks are at the heart of fears that Spain will follow Greece, Ireland and Portugal in seeking a bailout from the European Union and the International Monetary Fund but Madrid insists it can solve their problems on its own.

The government has strengthened bank balance sheets, cut spending and pursued economic reforms to allay concerns over the outlook for Spain’s finances.

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.

The Bank of Spain estimates the banks will need to raise around 15 billion euros overall to meet the new capital requirements but many analysts predict the amount will be higher.

Last week, the central bank approved all the capital raising plans put forward by banks and savings banks, including CAM’s, to meet the new minimum levels.

CAM, based in the eastern coastal region of Alicante which was one of the worst hit by the collapse of Spain’s property bubble, announced it was seeking state funds after a planned merger with three other regional savings banks — Cajastur, Caja de Extremadura and Caja de Cantabria — fell through.

The merger was to have created Banco Base, which would have been the third-largest savings bank in terms of assets.

It was the first, and so far only, broken-off engagement in the savings bank sector since a wave of government driven consolidation in 2010 cut the number of institutions from 45 to just 14.