Wednesday, July 22, 2009

Church-Owned Bank CajaSur Seeks A Saviour In Spain

A small, troubled Spanish bank controlled by the Catholic Church is looking for a savior as it comes to terms with massive loan losses and a depressed economy in one of the country's poorest regions.

Cordoba-based CajaSur, which is headed by priest Santiago Gomez Sierra, said Tuesday it was in merger talks with larger and healthier savings bank Unicaja.

Wearing his clerical collar and cassock, Gomez Sierra was photographed by the local media after meeting Unicaja Chairman Braulio Medel on Monday afternoon.

Both banks are based in Spain's southern Andalusia region, with Unicaja acting as regional consolidator after the Spanish government recently laid out the legal framework and funding mechanisms for bank bailouts.

CajaSur is struggling to digest a rapidly growing pool of souring loans from risky lending to once-mighty real estate developers. It has the highest rate of nonperforming loans among Spanish banks, at 7.9% of total loans.

CajaSur's position was weakened further in recent months after debt-rating firm Fitch Ratings downgraded CajaSur's debt to junk status, forcing the bank to seek EUR200 million in last-minute funding from the European Central Bank.

CajaSur officials weren't available for comment.

While Malaga-based Unicaja is in a stronger position, with lower loan defaults and stronger capital, observers expect Unicaja to become the first institution to tap Spain's brand new bank bailout fund to take over CajaSur without risking a deterioration of its own capital base.

Spain's 45 savings banks tend to command leading positions in their home regions. CajaSur is no exception: It has written about half of all credit given in the Cordoba province in recent years.

Instead of distributing dividends, Spanish savings banks are required to allocate a large percentage of profits into social welfare projects.

Analysts say banking regulators are keen to expedite mergers to prevent potential credit squeezes hitting local economies. This has sparked prospects for consolidation in the Spanish savings bank sector. Central bank officials declined to comment.

Unicaja, with EUR32.2 billion in assets, has already agreed to absorb much-smaller regional rival Caja Jaen. It also held unsuccessful merger talks with Caja Castilla La Mancha, which was later seized by central bank in the first bailout of a Spanish financial institution.

Making a potential merger a slightly complicated affair is CajaSur's governance structure. Founded by the Catholic Church in Cordoba, the clergy controls CajaSur's management and its charities.

According to local media reports, CajaSur is seeking to retain influence in social welfare projects, a key tool in a region with an unemployment rate that tops 24%, well above Spain's average of about 18%.

CajaSur's not-for-profit initiatives foster church doctrine, backing associations that support pregnant women with financial difficulties and publishing research on the history of the church in Spain and Latin America.

Unicaja, in turn, is considered close to the Spanish Socialist Party, which has controlled the Andalusian government for decades.

Already the biggest savings bank in the region, adding CajaSur to Unicaja's asset base would make it the sixth-biggest savings bank in Spain, with EUR53.2 billion in assets and just under 1,500 office branches.

It would still be at a distance from Spain's top two savings banks, La Caixa and Caja Madrid, but would be able to compete head-to-head with second-tier players like Caja de Ahorros del Mediterraneo (CAM.MC) and Bancaja.

Should CajaSur and Unicaja reach common ground on a merger, they would need the approval for a tie-up from the Bank of Spain.

The combined company would then likely look for an eventual capital injection, followed by a restructuring of the merged entity and then possibly begin efforts to look for further merger partners outside Andalusia.
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Source (WSJ)

SV (ED)

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