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Investors wary of funding Spain's cajas

Source: Reuters - Thu 10th Feb 2011

Spain's cajas may struggle to raise enough capital from private investors to meet the new rules, according to a Reuters poll of international investors running more than $2 trillion in funds.

11 out of the 13 pension schemes, fund and wealth managers surveyed expressed reservations about investing, with uncertainty over bad debt, transparency and Spain's economy among their concerns.

2 managers said they would not even consider buying into the cajas because of the risk.

Barcelona-based La Caixa, seen as one of the strongest cajas, held a series of meetings with existing bondholders througghout Europe this week to discuss its plan to restructure and list on the stock market.

One potential investor said he might consider investing in the banks "but only after a thorough audit of their books by someone that investors could trust - ie completely independent of the Spanish government and banking system."

"The books need to be transparent and the banks recapitalised. I believe that the real losses hidden on their books are massive," he said.

The Spanish government has given the cajas until September to raise capital ratios to 10% or face nationalisation. They would prefer to raise private funds to fix the legacy of bad real estate debts, but can call on a Spanish restructuring fund (FROB) if needed. Estimates of the overall capital shortfalls vary from the Spanish government's view of 20 billion euros, to as much as 50 billion euros expected by some analysts.

Barclays Capital says cajas' recapitalisation needs are about 46 billion euros, rising to 92 billion euros in a severe economic downturn. The Bank of Spain estimated banks' potentially problematic exposure to the real estate and construction sector stood at 181 million euros at June 2010.

Those surveyed by the poll initiated by Reuters said any new shares would need to be cheap, stating preferred discounts of between 10 - 40% against the banks' listed peers.


The two largest Cajas - La Caixa and its main rival Caja Madrid - have already started the process of seeking new capital from foreign investors. La Caixa plans to create CaixaBank by injecting La Caixa's banking assets into already listed holding company Criteria and then raising capital via convertible bonds. La Caixa's roadshow visited London, Paris and Frankfurt to outline the details of its restructuring and listing plans. Its size and the structure of the proposed recovery plan has impressed some investors.

While 6 of the 13 managers surveyed said they did not view La Caixa as a better prospect to its rivals, 4 said they considered it exceptional within the savings banks sector. "(La Caixa's) troubled assets have been left behind and the new bank coming to the market is clean, well capitalized (and) has the highest non-performing loan coverage ratios in the system. Even prior to the separation, La Caixa's performance was best in class," said a respondent at a large British investment manager.

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