Spanish Caja Merger Collapse May Scare Off Potential Investors

The unravelling of the merger of four Spanish savings banks may deter potential investors in similar tie-ups because of concern over hidden real-estate losses.

“It’s definitely a call for people to be very alert because this whole process is still not at all clear,” said Ricardo Wehrhahn, a partner at Roland Berger Strategy Consultants, which is advising potential investors in the Spanish savings-bank industry, including private-equity firms.

Three lenders led by Cajastur voted on March 30 against completing a merger with Caja de Ahorros del Mediterraneo (CAM) to create Banco Base, which would have been the third-biggest Spanish savings group with assets of 124 billion euros ($176 billion). The collapse undermines government efforts to bolster confidence in the banking system and may increase concern that property-related losses still lurk on lenders’ books, said Wehrhahn.

Caja de Ahorros del Mediterraneo, known as CAM, will hold a board meeting today at 5 p.m. Madrid time to consider its options, a spokesman for the Alicante, Spain-based lender said by telephone.

Capital Requirements

Nomura Holdings Inc. has contacted Spanish banks on CAM’s behalf to explore alternatives and help the lender resolve its future, said two people with knowledge of the situation, who asked not to be named because it’s a confidential matter. A spokeswoman for Nomura in Madrid declined to comment on whether it was advising CAM.

Spokesmen for Banco Santander SA (SAN), Banco Bilbao Vizcaya Argentaria SA (BBVA), Banco Popular SA and Banco Sabadell SA declined to comment on whether the respective banks may be interested in buying CAM.

As many as 12 banks must raise a combined 15.2 billion euros to comply with minimum capital requirements set by the government. Lenders including Bankia, the entity emerging from the combination of Caja Madrid and six other savings banks, and Banca Civica say they will use share listings to raise the capital they need.

J.C. Flowers & Co. may be among initial investors in Banca Civica, the Spanish lender’s Co-Chairman Enrique Goni said at a Feb. 8 news conference. Cerberus Capital Management LP and Paulson & Co. are among investors that have showed interest in buying savings-bank assets in Spain, El Economista reported March 3.

Bailout Concerns

Spain is seeking to shore up confidence in its financial system as investors increase bets that Portugal may be forced to follow Greece and Ireland in seeking a European bailout.

Spain’s Socialist government, which tightened capital requirements for lenders in February, is implementing austerity measures to rein in the euro region’s third-largest budget deficit. The gap between Spanish and German 10-year borrowing costs narrowed to 191 basis points today from 194.3 basis points. A basis point is 0.01 percentage point.

“The Spanish bank sector desperately needs to be consolidated, especially the cajas with their stretched balance sheets,” said Espen Furnes, a fund manager at Storebrand ASA in Oslo who helps oversee $70 billion. “The cajas’ deal falling apart means that the Spanish banking landscape is still clouded and this will scare away new investors.”

The general assemblies of Cajastur, Caja Cantabria and Caja de Extremadura, the three partners along with CAM in the proposed Banco Base, voted against completing the tie-up, aborting a process begun last May.

‘Rotten Apple’

The collapse resulted from concern over the state of CAM’s assets, said Vicente Arce, the general secretary of the Comisiones Obreras union in Cantabria, who attended the Caja Cantabria meeting as a board member.

“We decided we’d be better off without the rotten apple,” he said in a telephone interview.

Maria Dolores Amoros, CAM’s general director, said in an e- mailed statement on March 30 that it is “absolutely false” that there had been any surprise or change in the bank’s numbers, which had been known to its merger partners “for months.”

Banco Base said on March 29 it would seek 2.78 billion euros from Spain’s bank-bailout fund, almost twice the amount the Bank of Spain told it to raise.

Following the unravelling of Banco Base, CAM said in a filing to regulators it would seek support from the rescue fund, a step that would entail at least partial nationalization. CAM, which has about 74 billion euros in assets, would have had a 40 percent share in the merger along with Cajastur, while Caja de Extremadura had 11 percent and Caja Cantabria 9 percent.

“It shows there are still uncertainties around the issue of asset-quality risk and how big the losses are going to be,” said Daragh Quinn, an analyst at Nomura International in Madrid. “It would confirm for some would-be investors that there will have to be absolute clarity on what they are buying.”

To contact the reporters on this story: Charles Penty in Madrid at cpenty@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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