Unicaja Merger: First of Many in Spain?
March 9th, 2009
Two Spanish regional savings banks on Monday said they had reached a preliminary merger deal, marking the first in an expected string of tie ups among Spain’s small, liquidity-starved banks during the global crisis.
The proposed integration of Unicaja, based in Spain’s southern Andalucia region, and the smaller Caja Castilla La Mancha (CCM), located in the central-southern province of the same name, follows carefully brokered talks by the Bank of Spain.
Some analysts said it could be followed by a capital injection from Spain’s Deposit Guarantee Fund to help clean up the combined bank’s accounts.
“The integration of both banks enjoys the support and backing of financial authorities to create a financial institution with maximum solvency and economic strength,” CCM and Unicaja said in a joint statement.
Spain has weathered the first 20 months of the global crisis without a single bank nationalization or bailout.
Sector leaders Santander and BBVA have fared better than competitors due to a focus on retail banking, more conservative investment policies and tough regulation.
Small regional savings banks are more highly leveraged and ratings agencies have long warned of solvency problems after the Spanish property collapse coincided with the credit crunch.
With Spanish unemployment and debt defaults spiralling, the Bank of Spain is trying to forge mergers among the country’s 45 largely unlisted savings banks, which hold more than half the country’s real-estate debt.
Such deals can be complex, as savings banks or cajas have strong links to local political administrations, but are crucial given cajas usually form the lynchpin of local economies.
A merger between Unicaja and CCM would create a group with assets of about 60 billion euros, mainly in retail banking.
The combined group would have 1,500 branches in about 30 Spanish provinces and abroad.
It would create one of the five largest regional savings banks in Spain and mark the first inter-regional tie up between such banks since the global credit crisis began in August 2007.
Some analysts said Unicaja might have to draw on Spain’s Deposit Guarantee Fund, made up of about 7 billion euros from banks, to clean up CCM accounts.
“This only makes sense for Unicaja if the merger is accompanied by economic help,” said one senior Spanish analyst, who asked not to be named. “It’s hardly viable for one bank to absorb another and take on all its problems.”
Economy Minister Pedro Solbes last week said banks could draw on the FGD should they need to clean up balance sheets. Both Solbes and Bank of Spain Governor Miguel Angel Fernandez Ordonez said they will do everything in their power to avoid use of public funds to bail out banks.
“What the Bank of Spain is trying to do, before anything else, is find private solutions, and avoid putting in public money,” Ordonez told Congress last week.
Story from The Guardian
