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Number of Cajas expected to turn to FROB

Source: El Pais - Wed 13th Apr 2011

Unnim, a merger between three Catalan cajas, believes that a number of Spanish lenders will seek state funding to meet the new solvency requirements for the sector due to the problems in the current environment of raising private capital.

The minimum core capital ratio for listed banks is being raised from 6% to 8%, and rising to 10% in the case of non-listed cajas, which are heavily reliant on wholesale funding. Banks can ask the Orderly Banking Restructuring Fund (FROB) for financial assistance in doing this, however, it would resulst in their partial privatization.

The Bank of Spain estimates that the industry needs 15.15 billion euros to meet the new capital requirements. Unnim, who are unlisted, will require 568 million euros to reach the 10% benchmark.

Any bank that applies for FROB funding will have the right to buy their shares back at market prices within a maximum of two years.

A number of cajas have announced plans to fold their banking business into separate entities and seek a listing in the stock market to raise the necessary capital - as in the case of Bankia - the commercial brand of an alliance of seven cajas led by Caja Madrid.

In recent plans sent to the Bank of Spain, Unnim left a number of avenues open to meeting the new requirements, including tapping the FROB, seeking private funding and merging with a bigger lender.

An earlier rounf of consolidation of cajas had reduced the number of lenders 17 from 45.

Unnim itself was formed by the merger of Caixa Terrasa, Caixa Sabadell and Caixa Manlleu. But with assets of some 30 billion euros, it remains one of the smaller players. Further mergers may likely, particularly in the case of Caja del Mediterráneo (CAM), which was abandoned last month by its merger partners Cajastur, Caja Extremadura and Caja Cantabria over concerns about the state of its finances.

CAM has asked for 2.8 billion euros from the FROB to meet new requirement, which would involve the nationalization of the caja. The alternative would be to find a buyer for Alicante-based CAM, which is heavily exposed to the ailing real estate sector, where property prices on some parts of the Mediterranean coast have fallen by as much as 40%.

BBVA, Spain's second-biggest bank, has expressed interest in acquiring CAM at the right price, but Santander, the country's biggest bank, its domestic unit Banesto, Banco Popular and Banco Sabadell have also expressed an interest. The rest of the would-be buyers include BNP, and the cajas Unicaja and Ibercaja, and a group of Basque savings banks.

Any buyer would need to act quickly, as the Bank of Spain is due to make its opinion of the sector's recapitalization plans known on April 14, giving the banks until April 28 to approve those plans, incorporating any modifications suggest by the supervisor.

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