Caja Madrid Merging with Bancaja and 5 smaller Cajas to access Central Bank Bailout Money

Caja Madrid which was looking for a Bailout from the Spanish Central Bank is merging with another large Caja Bancaja.The Central Bank is pressurizing the Cajas(Socially run Spanish Savings Banks) to merge with each other to reduce costs and improve management.This is being done with the help of a Bailout Carrot.The Cajas are basically badly run finanical institutions with shoddy management and dodgy accountability.CajaSur,a Caja recently seized by the Spanish Central Bank had a Catholic Priest as the Chairman ,who started Board proceedings with a prayer.Note Caja Madrid was already in talks to merge with 5 smaller Cajas ( Caja Insular de Canarias, Caixa Laietana, Caja de Avila, Caja Segovia and Caja Rioja).With the addition of Bancaja,this new entity will be the largest Caja in Spain overtaking LaCaixa.The whole Spanish Financial Sector has been hit hard by the Real Estate Bubble Burst with a large percentage Real Estate loans turning into NPAs.For some of these badly run Cajas,the bad loan losses are greater than their capital threatening a run on the Spanish Banks.Even well run Spanish banks like Sandtander and BBVA are facing funding problems.The Caja Madrid is not the only group that is merging , another set of 5 Cajas led by Caja de Ahorros del Mediterraneo is in the process of merging.

The Bailout Cost of the Cajas range from 30-50 Billion Euros and will be a severe burden on the Spanish Government which is looking to cut a massive 11% Fiscal Deficit.The Spanish Bonds have been under pressure with rising yields threatening a future Greece like situation.With growth anaemic and umemployment of 20% Plus,Spain is in a dire situation with rumors of a Soveriegn Bailout being needed.Though the Spanish Markets and Euro  have rallied a bit in the last couple of days , it looks more like a dead cat bounce than a sustainable recovery.

Caja Madrid, Bancaja Start Moves to Form Top Spain Savings Bank – Bloomberg

Caja Madrid and Bancaja began a merger process that would create Spain’s biggest savings bank amid government efforts to shore up the country’s financial system.The boards of the second- and third-biggest savings banks met yesterday to hear more about steps by Bancaja to join a project already under way by Caja Madrid to combine with five other smaller savings banks, the two lenders said in filings to regulators. The merger would create a lender with about 340 billion euros ($413 billion) in assets, according to their published accounts.

Spanish savings banks are rushing to combine before a deadline to tap a government rescue fund expires at the end of this month. The cajas will combine under a central-bank-endorsed model that allows them to create a core business group to combine some central functions while maintaining separate legal identities and branch networks, they said.The lenders will pool their earnings and guarantee each other’s solvency, Caja Madrid and Bancaja said. They would seek about 4.5 billion euros from a government bank-rescue fund to support their merger, Efe newswire reported, citing people familiar with the situation it didn’t identify.