Spain’s banks to see further consolidation

REUTERS

MADRID AN emergency cash injection from Europe is set to trigger more takeovers in Spain’s shrinking financial sector, leaving around 10 banks compared with more than 40 just three years ago.

Spain’s banks have been forced into mergers since a decade-long property boom collapsed, lumbering them with a glut of unsold homes, undeveloped lots and bad loans.

More than 30 small regional savings banks, or cajas, have already been swallowed up by bigger lenders, or have merged together, leaving 14 substantial banks.

Now, bankers say, the strongest four or five of those are likely to buy the weakest lenders - banks that have already been taken over by the state or smaller lenders.

The carrot for buyers is €40 billion ($52 billion) of European bailout money that will help clean up the weaker banks and force them to offload soured assets to a bad bank being set up by the government, making them more attractive targets.

Independent stress tests of the country’s banks left a very clear map of seven predators and seven prey, said a Spanish banker who did not want to be identified.

“Four or five of the relatively healthy lenders will embark on the hunt for four or five weaker institutions in the short to medium term,” the banker said.

Foreign buyers are expected to stay away because of the huge risks in Spain, struggling with a sovereign debt crisis.

House prices are still falling and bad loans will continue to rise for at least another year, as consumers and businesses default in a deep recession.

The likely predators are healthy banks Santander, BBVA, CaixaBank, Sabadell and Kutxa, a Basque lender.

Their targets are likely to include nationalised banks Catalunya Caixa, NovaGalicia Banc and Banco de Valencia , as well as other small banks such as Banco Mare Nostrum or Caja 3
Mid-sized bank Popular is not seen strong enough to go on the hunt for acquisitions, but could become a target for a buyer if it fails to carry out an ambitious capital hike.

A new law, passed to meet the conditions for European aid, makes it easier for the state to liquidate banks and sell them off in pieces.

“There will be fierce competition among lenders to buy the most valuable assets,” said Berges, chief executive at independent think tank Analistas Financieros (AFI).

Nationalised lenders Bankia, Catalunya Caixa, NovaGalicia and Banco de Valencia will take huge losses on piles of homes and vacant lots they will transfer to the bad bank.

A financial source with knowledge of negotiations said that as a condition of the rescue, the four banks will shrink their balance sheets by up to 40 percent, making them cheaper buyout targets.

Santander, BBVA and Kutxa are among the frontrunners for acquiring Catalunya Caixa, with assets of around €80 billion, say banking sources.

NovaGalicia, with assets of around 75 billion euros, could be a welcome target for Caixabank, the sources say.

Popular, which an independent audit showed has a capital gap of €3.2 billion, has embarked on €2.5 billion shares issue as it tries to avoid being taken over by the state or a competitor.

“If Popular cannot make it on its own Caixabank will be sniffing around,” a Spanish banker said.

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