THE BANK of Spain stepped in at the weekend to rescue CajaSur, a Cordoba-based savings bank owned and controlled by the Catholic Church. Spain’s central bank has guaranteed all deposits and appointed three administrators to take over the running of CajaSur to put it back on its feet until it can be sold to another bank.
The intervention came after merger talks between CajaSur and Unicaja of Malaga broke down last weekend. The bank, which had losses of €104 million in 2009 and €114 million in the first quarter of this year, has been badly hit by the collapse in the construction and property sectors and has bad debts on funds loaned to clients involved in property development.
The collapse of CajaSur comes only a week after the government announced its €15 billion austerity measures to reduce the huge budget deficit.
On Sunday Spanish prime minister José Luis Rodríguez Zapatero denied that the bank bailout would force him to rethink his plan. But it brings into question the viability of some of Spain’s 45 cajas de ahorro – regional savings banks.
Only three weeks ago Mr Zapatero had a rare meeting with opposition leader Mariano Rajoy and one of the few points of agreement between the two men was a decision to reform the cajas, which will almost certainly result in further mergers.
This is the second time in just over a year that the Bank of Spain has been forced to step in to rescue a troubled caja. Fifteen months ago similar talks between Caja de Castilla La Mancha (CCM), which was teetering on the brink of bankruptcy, and Cajastur broke down. CCM is still in the hands of central bank administrators as a new buyer has not yet emerged.
A Fund for Orderly Restructuring, established after the CCM takeover last year and which will underwrite CajaSur’s balance sheet with an initial €550 million, has up to €99 billion at its disposal to facilitate mergers between the small lenders. But disagreements over cross-regional tie-ups and local politics have ensnarled the consolidation process in a similar way to that facing Germany’s Landesbank.
The tradition of Spanish cajas de ahorro date back many years – CajaSur is almost 150 years old – before modern technology made them obsolescent.
Many of them were founded by regional organisations or corporations and, as in the case of the Cordoba caja, by the local church. Clients were local businesses, farmers and small investors.
Between them the cajas hold half the assets of Spain’s financial system. About a third of the savings banks have already completed mergers and another third are immersed in talks.
Savings banks have granted $304 billion of the $567 billion in outstanding loans for real estate activity or construction, according to the Bank of Spain.
By the end of last week it looked as if more than nine months of talks between CajaSur and Unicaja were about to bear fruit. But at the last moment Fr Santiago Gomez Sierra, CajaSur’s president until he was dismissed on Saturday, backed down.
Fr Gomez alleges that job security of the staff was the sticking point, but local observers put the blame on “poor chemistry” between himself and Unicaja directors. Few deny that CajaSur is grossly overstaffed with more than 3,000 employees in 474 offices, the majority of them in and around Cordoba. Even the unions are in favour of a merger.
Cordoba’s caja is immensely powerful in the region, controlling some 50 per cent of all businesses in the city which has a population of 320,000. One observer described the situation to the newspaper El País. “The church in Cordoba looks on the CajaSur as its own property. They see a merger with Unicaja as tantamount to handing it over to the reds,” he said. – (Additional reporting Reuters/Bloomberg)
