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Investors wary of Spain savings banks as clock ticks

Source: Reuters - Sat 10th Sep 2011

A handful of Spanish savings banks that still have to recapitalise to meet strict new rules are running out of options to raise money from private investors and will likely end up being taken over by the state.

These banks have until the end of September to bolster their capital and Saturday is the deadline for them to present their plans and petition the central bank for more time.

They can get an extension to the end of December if they have deals underway or even to next March if they can show that they have a public share offering in the works.

But public share offerings now look very unlikely, analysts say, especially after one savings bank - Caja de Ahorros del Mediterraneo (CAM), taken over by the state in July - reported big first-half losses on Monday, reigniting concerns about bad property loans on banks' books.

CAM's steep first half losses, which followed gains in the first quarter, have reinforced the view that Spain's banks haven't come clean with their bad loan exposures, said Enrique Quemada, chief executive of M&A advisers One to One Capital Partners.

"When you see that, investors panic at the idea of getting involved," he said.

CAM reported it lost 1.1 billion euros in the first half of the year, after having reported 40 million in profit in the first quarter. Also, its bad loans ratio rose to 19% at the end of June from 9% at the end of 2010.

Two small savings banks, Liberbank (also known as Cajastur) and Banco Mare Nostrum, have abandoned share issue plans but continue to seek private investors, said sources with knowledge of the process. Both banks declined to comment for this story.

Three other banks, Catalunya Caixa, NovaCaixaGalicia and Unnim are still seeking private investment as well, though the best they can hope for is to prevent a full takeover by the FROB, a state fund set up to recapitalise banks.


Banks across Europe are under pressure to bolster their capital to cushion against future shocks, but the euro zone debt crisis has made private investors wary of putting money into the sector forcing governments to step in.

"Due to the lack of liquidity and the fact that investors are wary about the financial sector it is looking like the FROB will end up being the majority shareholder in a lot of the (Spanish) banks," said Nuria Alvarez, financial sector analyst at Renta 4 in Madrid.

Spain has already forced some of its savings banks, which were highly exposed to a property boom and bust, to merge with one another and to bulk up on capital. The savings banks make up half of the country's financial system.

The central bank set a minimum Tier 1 core capital ratio - a measure of financial strength - of 8%, or 10% for those savings banks which do not list on the stock market or sign up a major shareholder.

In July, the central bank estimated Spain's financial sector needed 17 billion euros in capital to meet new solvency ratios, of which some 7.7 billion would come from the state, including 2.8 billion already spent on nationalising CAM and including the funds raised in the July share listings.


Since then, market conditions have deteriorated as investors have dumped European bank stocks in response to concerns over exposure to euro zone sovereign debt.

"Better forget about a listing now," said a source at one savings bank that continues to look for a private investor.

For Banco Mare Nostrum, Liberbank (Cajastur) and NovaCaixaGalicia the only option left is to seek private equity firms to invest, said Jose Carlos Diez, head of research at Intermoney in Madrid.

But since the restructuring of the Spanish financial system began in 2010, no private equity deal has come through.

One set of banks that is no longer seeking capital is Caja Espana, Caja Duero and Unicaja, who announced a merger on Wednesday. The merged group reaches capital ratio targets.

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