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Four Spanish Savings Banks to Merge

MADRID -- Four Spanish savings banks have announced plans to merge amid concerns over solvency in the sector.

Cajastur, Caja de Ahorros del Mediterraneo, Caja Extremadura and Caja Cantabria said they had reached an agreement to form a group that would "strengthen solvency and assets of the participating banks."

The move announced late Monday came after the Bank of Spain bailed out Andalusian savings bank Cajasur over the weekend, after merger talks with the savings bank broke down.

It was the second savings bank bailed out by public money, after the central bank took control of Caja Castilla-La Mancha in March 2009.

The merged entity would have a total of €135 billion ($167 billion) in assets, making it Spain's third-biggest savings bank and the country's fifth largest bank overall.

Caja de Ahorros del Mediterraneo and Cajastur would hold 40% stakes each, Caja Extremadura 11%t and Caja Cantabria 9%. The four would retain their management boards and branch networks but would combine operations such as risk control and credit assessment.

Spain's banking sector has withstood the international financial crisis, owing to strict regulations that forced banks to set aside provisions during an economic boom fueled by construction and consumer spending.

But smaller savings banks, heavily exposed to the real estate sector and burdened with a rising rate of bad loans, have suffered considerably with the recession and the collapse of the building industry.

On Monday, the International Monetary Fund issued a report saying the country's banking sector was sound, but "under pressure" and in need of consolidation.

The IMF called on Spain to radically reform its labor market, saying its recovery from financial crisis was weak.

Europe's top job creator two years ago, Spain now has the region's highest unemployment rate at just over 20 percent.

The country is also applying reforms it hopes will bring its large deficit back from 11.2% of gross domestic product in 2009 to within the EU limit of 3% by 2013.

Copyright 2010 Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

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