Spain's Caja Madrid requests fund bail-out

Caja Madrid has requested a 3 billion euro government rescue package, set aside to promote mergers among the country's network of unlisted savings banks, a source close to the company reported earlier today.

The government has given a deadline of June 30th to apply for assistance from the Fund for Orderly Bank Restructuring (FROB). This is to encourage the larger and more stable savings banks to absorb the smaller, weaker ones after the banking sector's credit quality was downgraded due to heavy exposure to the country's property bust.

Caja Madrid, which is Spain’s second-largest saving bank, is reported to be in merger talks with Caja Avila, Caja Insular de Canarias, Caixa Laietana, Caja Segovia and Caja Rioja, but has as yet issued no comment.

Following a similar downgrade on Friday of last week, Fitch today downgraded FROB debt to AA+ from AAA.

The fund currently holds 9 billion euros, of which 6.75 billion euros are thanks to last year’s budget, with the remaining 2.25 billion euros being contributed by the banks themselves by means of a Deposit Guarantee Fund.

The Bank of Spain took over CajaSur, a small, 146-year-old ailing lender controlled by the Catholic Church, on May 22, a warning to other savings banks delaying mergers. The bank has also proposed new rules aimed at forcing Spanish banks, who are owed over 300 billion euros by property developers, to take the hit for bad loans sooner.