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Spanish Cajas in trouble as S&P and Fitch cut debt ratings;Caja Madrid reported in need of 3 Billion Euro Bailout

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Spanish Cajas have been in the news recently acting as the equivalent of the “subprime sector” during the US financial crisis.CajaSur was seized by the Spanish Central Bank after running into massive losses in its real estate loan portfolio.The Cajas which are socially run not for profit banks in general have incompetent management and little accountability.They have become the biggest vulnerability for the Spanish finanical sector with even well run Spanish banks like BBVA facing funding troubles.The Spanish government has set up a Euro 99 Billion Fund to bail out these Cajas but on the condition they merge and restructure.However I don’t think that will be able to overcome the solvency problems of these Cajas just as merging of Merill Lynch with Bank of America did’nt.

The Spanish government has ambitious targets of sharply cutting its 11+% fiscal deficit¬† to 3% by 2013 . This includes GDP growth rates which look unrealistic and also don’t count the costs of bailing out these Cajas.The government is run by a Socialist coalition which is getting more and more unpopular by the day.The recent austerity cuts were passed by a majority of just 1 vote.It is looking more and more like that Spain will be the next crisis spot for Europe followed by Greece with the Cajas serving as the catylsyt

Caja Madrid said to ask for 3 billion euros of support – Marketwatch

The stream of negative news from Spain’s savings bank sector continued on Tuesday, with a report that the second largest player, Caja Madrid, will tap the government for 3 billion euros ($3.6 billion) of rescue funds.A spokesperson for Caja Madrid said the report that appeared in several Spanish newspapers saying it will ask for funds from the government’s rescue fund was “speculation.”The savings bank said last Friday it was in talks to merge with several regional cajas — Caja de Avila, Caja Insular de Canarias, Caixa Laietana, Caja Segovia and Caja Rioja.More bad news emerged for Caja Madrid when Standard & Poor’s placed its A/A-1 long and short-term ratings on the savings bank on CreditWatch negative, saying it expects “pronounced pressure” on its operating profit this year and into 2011.

S&P said Caja Madrid, Spain’s fourth-largest banking group by total assets, will be closely monitored over the next 18 months to evaluate the magnitude of expected deterioration.Downgraded on Tuesday was Spanish bank Banco Sabadell, the nation’s sixth-largest group by total assets.Fitch Ratings, who downgraded Spanish sovereign debt last Friday, cut its long-term debt rating on Sabadell to A from A+.Fitch also downgraded Caja de Ahorros del Mediterraneo’s long-term debt to BBB+ from A- with a negative outlook, and Banco de Valencia and Bancaja each to BBB from BBB+ with stable outlooks.


Sneha Shah

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