Seven former savings banks in Spain make prime targets for rescue funds

By Sonya Dowsett, Reuters

MADRID — Seven former savings banks in Spain, already patched up with state aid, will be first in line to tap European rescue funds requested by the country, though the line for financing could grow to include all but the very biggest banks. Spain’s banks lent heavily to real estate developers during a decadelong property boom which ended in 2008, leaving creditors with bad loans to housebuilders, unfinished apartment complexes and brownfield sites. The eurozone’s fourth largest economy is unable to raise funds on the international markets to cover these losses at reasonable prices and had to ask on Saturday for up to 100 billion euros (US$125 billion) from the eurozone to shore up its financial system. The International Monetary Fund said in a report on Friday that the most troubled former savings banks, accounting for around 22 percent of the country’s financial system, faced the biggest challenge due to their high real estate exposure. The IMF did not name the entities, but seven savings banks have received state help to cope with losses and absorb mergers. Spain now has around 10 savings banks, less than a quarter of their number two years ago after the government forced a program of consolidation. The seven banks are Catalunya Caixa; Unnim — now part of BBVA; Espana-Duero — merged with Unicaja; NovaCaixaGalicia; Bankia; Banco Mare Nostrum; and Banca Civica — which belongs to CaixaBank. Of those, the most problematic is fourth-biggest lender Bankia, nationalized in a 23.5-billion-euro (US$29.3 billion) rescue last month, and the two former savings banks struggling with capital shortfalls — mid-sized NovaCaixaGalicia and CatalunyaCaixa. Both these banks were created by combining savings banks in autonomous regions — Galicia and Catalonia — partly to placate local politicians. The state took them over last year when it became clear they could not handle their losses.

These two lenders require around 9 billion euros to cover the latest government demands for capital to cushion against real estate loan defaults, the Bank of Spain told a closed-door parliamentary committee hearing, according to a political source present at the briefing.