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Bank of Spain urges new plan for Banco Base

Source: Reuters - Thu 31st Mar 2011

The Bank of Spain on Wednesday urged the four banks involved in the Banco Base merger to present alternative restructuring plans after moves to create Spain's third-largest savings bank fell into disarray.

Three of the partners in the state-driven merger voted against the tie-up on Wednesday, balking at an association with Caja Mediterraneo (CAM) - based in the coastal Alicante region, one of the worst hit during Spain's property crash.

"The Bank of Spain demands immediate notification from the four institutions involved in this project on what strategy they plan to follow," the central bank said, and reiterated an April 28 deadline to approve savings banks' recapitalisation plans.

Spain's unlisted savings banks, known as 'cajas', are undergoing a massive state-driven restructuring as part of government measures to reassure international markets on the stability of the country's financial system.

The cajas making up Banco Base - Cajastur, Caja Extremadura, Caja Cantabria and CAM -- must now seek fresh mergers or face nationalisation.

Banking sources said Cajastur, Caja Extremadura and Caja Cantabria are likely to continue with a three-way merger and may look for other partners.

Some of the Banco Base partners had expressed concern about deteriorating real estate assets sitting on the balance sheet of CAM. The Alicante region on Spain's Mediterranean coast is littered with unsold holiday developments.

"It's like they got to the altar, they were supposed to say the vows, but now think they can find a better partner," said one analyst.

The Bank of Spain said the Banco Base union was the only state-driven merger of regional banks that had not been fully completed. It would have accounted for 4 percent of Spain's banking system.

The break-up came a day after CAM said Banco Base would ask the state for 2.8 billion euros, twice its estimated capital shortfall - a sign of lenders bolstering reserves for future losses related to toxic real estate.

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