Cajasur to be sold to highest bidder

The Bank of Spain took over the running of Cajasur on Saturday following the Catholic Church-owned savings bank's rejection of a merger with rival Unicaja, thus dealing a second blow in just over a year to the government’s hopes of restructuring the troubled savingsbank sector through a series of mergers and acquisitions.

Cajasur has been put under the administration of the government's Orderly Bank Restructuring Fund (FROB), which was set up last June after the Bank of Spain was forced to take over the running of savings bank Caja Castilla de La Mancha.

Crippled by defaults on property loans, Cajasur lost 600 million Euros in 2009, and has been losing around 40 million Euros a month since. The Córdoba-based bank had been in talks since last July over a merger with the larger Unicaja, based in Málaga. The Bank of Spain said it was obliged to intervene after Cajasur’s board rejected the merger deal at the eleventh hour.

With some 14 billion Euros in deposits, the Cajasur savings bank represents nearly 0.6 percent of the assets of Spain's financial system, but has no operating capital.

The FROB will inject at least 500 million Euros of taxpayer money to keep Cajasur running, and will then provide further liquidity.

The bank's board has been sacked.

On the whole, Spanish banks have weathered the global financial crisis thanks to strict regulatory oversight. But the bursting of a decade-long housing bubble has left them with a more than 300-billion Euros debt hangover.

The country's largely unlisted savings banks — accounting for about half of the financial system — are most exposed to struggling property developers and have seen their capital eroded by soaring bad loans.

The Bank of Spain has set a target to cut the number of savings banks to about 15 from 45 by mid-year. About one third of the regionally controlled savings banks have merged, with another third in the process of doing so. Negotiations, which include the local political forces which participate in savingsbank boards, are generally proving to be drawn-out affairs.

Job cuts Cajasur's 20 board members — of whom six are priests, as is its president — rejected the merger saying that it would mean unsustainable job cuts. Cajasur employs more than 3,000 people and has 470 offices. But most analysts say that they were simply trying to maintain the more than- 150-year-old entity's independence.

Those hopes disappeared with the Bank of Spain's takeover. The bank will be sold to the highest bidder as quickly as possible, said the country's financial regulator. That could mean another savings bank, a high street bank, or even a foreign bank.

The FROB is authorized to find buyers or banks interested in a merger, as well as to transfer part or all of any entity it intervenes in "through the total or partial shedding of its assets through proceedings that assure competitiveness, such as through auction," says article seven of the fund. Cajasur has assets of just under 19 billion euros.

The FROB has a maximum of six months to do so, but will likely get Cajasur off its hands within three months.

Unicaja says that it is still interested in a merger with Cajasur, and will be keen to recoup the time and money it has spent up to now in talks. But it is unclear whether the FROB would be able to authorize a merger, and that if Unicaja is interested in a purchase, it will have to do so through auction.

The collapse of Cajasur comes at a difficult time for Spain, with pressure from the international markets forcing the government to implement the country's harshest adjustment plan in more than 35 years.

The FROB will take over the daily running of Cajasur in the meantime, as well as naming a new board. The aim is to avoid the Bank of Spain and the government's involvement as much as possible. When Caja Castilla La Mancha collapsed in March 2009, an emergency Cabinet meeting had to be called on a Sunday and three Bank of Spain inspectors sent in to run the entity.

(Published by El País – May 24, 2010)