Spain's central bank early Saturday seized Church- controlled savings bank CajaSur, a significant step forward in its efforts to clean up the country's ailing mutually owned banks.
The takeover of the small, Andalusia-based bank comes at a time of rising concerns over Spanish creditworthiness. Earlier this month, the European Union put together a giant financial backstop to ease concerns that Spain and other countries could default on their debt. Spanish banks have encountered increasing difficulties getting funding in international markets.
CajaSur's failure is the second in Spain since the start of the global financial crisis more than two years ago, and comes at a critical time for a banking system that until now has been able to resist intense pressures from the global financial crisis. Unlisted savings banks, with strong ties to local governments and communities, have been the hardest hit.
CajaSur, based in the Southern Spanish city of Cordoba, has EUR13 billion in loans and holds a marginal 0.6% of the total assets in the Spanish financial system. CajaSur, which was founded by the Roman Catholic church of Cordoba in 1864, was considered the weakest link among the savings banks. Its solvency had deteriorated significantly by a fast-growing pool of souring real-estate loans.
Many savings banks grew faster than their listed peers during the country's decade-long construction and real estate boom, in part because they lent more to local real estate developers. As the housing bubble started to deflate and the economy stagnated, Spanish banks saw their bad loans rise at unprecedented speed.
The bulk of the country's 44 savings banks, which account for about half of Spain bank business, are now scrambling to restructure via mergers, and the central bank is pressuring them to move faster, as merger talks have become bogged down by interference from the regional governments that control many of these institutions.
The boards of CajaSur and larger Andalusian peer Unicaja agreed to merge last August. However, CajaSur had been reluctant to accept the conditions of Unicaja's merger proposal, particularly regarding labor issues and extensive layoffs.
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