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Bank of Spain further Incentivises sale of CAM

Tue 27th Sep 2011

The Bank of Spain looks set to assume control of a further three Cajas over the next few days and is likely to receive interim offers for Alicante's CAM Bank (Caja de Ahorros del Mediterráneo), who it rescued in June of this year, from a number of larger European Banks.

The expected move, which should bring the FROB (Fund for Orderly Bank Restructuring) to an end, will inject €5 billion into the CatalunyaCaixa, Unnim and Novacaixagalicia Banking organisations. This measure will essentially partly nationalise the organisations - giving the Bank of Spain an estimated 90% stake in CatalunyaCaixa, 90% to 100% of the smaller Unnim and around 80% of Novacaixagalicia.

The cash injections by the Bank of Spain will then mean that almost all of the country's lenders will have increased their capital ratios in accordance with the new Banking regulations, which are required to be completed by the end of this month. However, two regional cajas have been allowed a further 3 months to raise capital from investors. In total, Spanish listed and unlisted banks were required to raise an additional €17 billion in new capital.

The IMF are now calling for a further round of stress tests and reform, noting how banks could face losses of around €300 billion on their holdings of European sovereign debt. After the last round of stress tests 16 banks only scraped through on the understanding that they took on fresh capital, with 7 of the 16 Banks being Spanish.

The Bank of Spain estimates that €100 billion is held by Spanish lenders in problematic assets, which includes loans in default, repossessed assets and loans that are still performing but at risk. Soon after the Bank of Spain took over CAM in July, it forced the lender to take a €1.15 billion write down and declared that 19% of the Bank's loans were at risk.

To incentivise the sale of CAM, the Bank of Spain is offering a number of guarantees, offering to cover 80% of losses up to €2.5 billion and 90% of losses above that level. It is also offering a €2.8 billion line of credit.

This has attracted interest from the likes of Santander, BBVA and CaixaBank.

Last week Finance Minister Elena Salgado commented on recent moves by the Band of Spain saying how Spanish banks no longer need to raise new funds.

Of the 7 Spanish Cajas who scraped through the last round of EU stress tests, 2 have raised capital by means of listing themselves as a Bank.

Even though the Spanish Banking sector is exposed to failing loans and bad debt through it's domestic property market crash, it is also exposed to €448 million Greek debt.

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