SPAIN’S banking woes continued yesterday after its second-largest savings bank Caja Madrid is understood to have sought up to €3bn (£2.5bn) from a government rescue fund.
Caja Madrid entered preliminary merger talks with five regional savings banks last week. But the Spanish lender released a statement saying the reports it will seek government funds are “speculation”.
The rescue fund is set up to promote mergers among the country’s network of unlisted regional banks.
The bank’s misery was compounded when its ratings were placed on CreditWatch negative by Standard & Poor’s, which expects “pronounced pressure” on its profits this year.
Following the bailout of savings bank CajaSur last month, the Bank of Spain is pushing harder for mergers among small savings banks, whose credit quality has deteriorated sharply due to heavy exposure to Spain’s ailing property sector.
But analysts have already questioned the cost-saving potential of a merger between institutions with little scope for branch closure or staff cuts.
Fellow Spanish bank Caja Avila said it is in talks for a virtual merger with Caja Madrid, Caja Insular de Canarias, Caixa Laietana, Caja Segovia and Caja Rioja.