Bank of Spain Seizes CajaSur

Making up as it does the final letter in the unflattering bloc PIIGS, those eurozone states with huge debt troubles, Spain has been on the radar of speculators for quite some time. While Ireland made radical cuts, Greece has fumbled along, Portugal has been lucky enough to have the Greeks take the worst of it, and Italy will be the last of the bunch to suffer. Spain, though, is starting to show that it is a genuine target for speculators with the Bank of Spain seizing savings bank CajaSur.

"This action, which we have taken as a result of the viability problems presented by CajaSur and the impossibility of closing its merger with Unicaja, will guarantee that it can continue to operate and fulfill its obligations," said the Bank of Spain in a statement. While the Spanish-to-English translation is easy enough, the important part of the message lies between the lines. CajaSur was too sick to merge with another bank.

Now that it is under administration, CajaSur has access to the Fund for Orderly Bank Restructuring [FROB, to give it its Castilian acronym]. Jesus Aguado of Reuters reports a source told him, "The lack of capital in CajaSur is estimated to be somewhat more than 500 million euros and that is at least the amount of capital the FROB will provide, apart from liquidity to be made available to the bank."

Spain's savings banks number 45, and they have most of the 300 million euro bad debt in what was a go-go real estate market. CajaSur's share of the financial system's assets is a mere 0.6%, but its fellow (largely unlisted) savings banks account for more than half of the financial system. "Consolidation" is the watchword, and the central bank expects about two-thirds of them to vanish either through merger or liquidation.

So far, Spain's rather tight regulatory market has prevented an outright collapse, but with a GDP of 1.051 trillion euro, 300 million euro in bad debt is, at worst, inconvenient. It's the budget deficit of 11.2% of GDP for 2009 that is the great worry. Spain has moved to cut that to 6% by 2011. It is a move in the right direction and bodes well for Spain's long-term financial health.

The eurozone can afford to bail out Greece and Portugal, and as mentioned above, doesn't need to save Ireland. Spain is shaping up to be the next battle ground, and the next few weeks may be telling. One expects the eurozone to survive, for no power to leave it, and for the Spanish government to manage the crisis competently. Nevertheless, it is not going to be pretty.

© Copyright 2010 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Ubuntu Linux.

Kensington Review Home