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Merger of 4 Spanish Savings Banks Collapses

The Bank of Spain has ordered the four savings banks or cajas that had been poised jointly to form the new Banco Base to provide details “immediately” of their plans following the collapse of the merger on Wednesday evening.

Spain
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Spain

Banco Base, which would have been Spain’s sixth-largest lender by assets, was the only merger not to have been finalised by Monday’s deadline for all Spanish banks and cajas to explain how they intended to recapitalise themselves if they fell short according to the central bank’s calculations.

On Tuesday, Banco Base’s provisional managers said they had asked the Fund for Orderly Bank Restructuring (Frob) for an extra €2.78 billion ($3.9 billion), almost double the €1.45 billion capital shortfall calculated by the Bank of Spain last week.

Banco Base was to have brought together Caja Mediterráneo (Cam) and savings banks from Asturias, Cantabria and Extremadura.

Cam, based in Alicante and heavily exposed to the troubled Spanish housing market on the Mediterranean coast, was the largest of the four by assets but now faces an uncertain future. It will have to find a new merger partner or outside investors or accept a takeover by the state in the form of the Frob.

Cajastur, a small but solvent caja from the northern region of Asturias that had already absorbed the collapsed Caja Castilla La Mancha, was the strongest partner in the Base project and pushed for the breakup during the past few daysas the extent of Cam’s difficulties became clear.

At separate extraordinary general meetings on Wednesday, Cajastur and the other two small cajas rejected the merger after they realised that a new institution in need of so much capital to cover Cam’s impaired property assets would quickly become a nationalised bank. Cam’s meeting approved the merger, but to no avail.

The Bank of Spain, which with the Spanish government has pushed for a series of mergers and other measures to restore the banking system to health, reminded the four cajas that it required unlisted lenders reliant on wholesale financing to have a core capital ratio — a measure of financial strength — of at least 10 percent of risk-weighted assets. For those with outside shareholders, essentially listed banks, the target ratio is 8 percent.

“In the event that they cannot obtain in the market the necessary capital to meet this obligation, the Frob will provide the capital required,” the Bank of Spain said in a statement.

The Bank says Spanish cajas and banks need an additional €15.15 billion on top of the money already lent, although some estimates from analysts are much higher.

Some cajas have accepted the need for partial nationalisation and will accept Frob money, while others are seeking outside investors and plan stock market flotations.