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CAM bank auction to struggle to attract bids

Source: Reuters - Sat 24th Sep 2011

The Bank of Spain will have a hard time attracting bidders for troubled savings bank Caja de Ahorros del Mediterraneo (CAM) with listed banks too concerned about their own capital needs to take on CAM's bad loans and debt obligations.

Banks must present non-binding bids by Monday for an auction likely to take place in October.

Santander , BBVA and CaixaBank have considered the purchase, according to market sources, but banks are wary of buying a lender where around half of loans to property developers had turned bad as of end-June.

"Nobody is very enthusiastic given the bank's exposure to property developer risk," said a source at one Spanish bank.

Spanish banks are battling to ward off investor concerns about their capital levels in the midst of a euro zone debt crisis where worries about exposure to sovereign debt has reached fever pitch.

A decade of reckless lending to property developers during a housing bubble which has since imploded has left a capital hole of many billions of euros on Spanish banks' balance sheets.

"It will be interesting to see how the auction goes in terms of how far the other Spanish banks are prepared to get involved with CAM once they've seen the books," said Daragh Quinn, banking analyst at Nomura.

The Bank of Spain took over CAM in July, injecting 5.8 billion euros of state funds and preparing the Alicante-based bank for sale. It has offered to share the risk of future losses with any potential buyer, according to a central bank source.

Across the bank, bad loans as a percentage of total loans stood at 19.5% at end-June, more than half the Spanish average. CAM reported losses of 1.1 billion euros for the first half of 2011.

In addition, CAM has 1.4 billion euros of debt obligations in 2011 and 5.9 billion euros in 2012.

The central bank is offering to protect any potential buyer against future losses at CAM for a ten-year period through the state-backed bank restructuring fund, the FROB, the source said.

Once CAM's capital cushion of 3.9 billion euros is gone, the government will pay 80% of any further losses on the first 2.5 billion euros, rising to 90% beyond this amount.

The sale of CAM is one of the final steps of an overhaul of Spain's banking system designed to boost capital levels and reassure investors by forcing banks to seek private capital or face nationalisation.

The Bank of Spain has estimated a capital shortfall of 17 billion euros in the banking system, not taking into account future losses on real estate.

However, analysts estimate the funding hole on banks' balance sheets widens to around 30 to 60 billion euros with future losses on real estate factored in.

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