LONDON, July 26 (Reuters) - The Spanish Confederation of Savings Banks (CECA) said smaller lenders, known as cajas, will be able to raise capital and Spanish banks are not being frozen out of the interbank lending market.
Last week’s stress test by the Committee of European Bank Supervisors (CEBS) showed that five of Spain’s smaller regional cajas failed the examination and need some 2 billion euros ($2.58 billion) of extra capital.
On Monday, executives from CECA held a presentation in London to attract investor interest to the savings banks, and CECA’s managing director told Reuters that the presentation had gone very well.
"I think it was tremendously positive. We were even ourselves surprised to see that 90 people turned up at 0830 this morning," Jorge Gil, managing director of CECA told Reuters Insider television.
"All of the feedback we are getting from the market is that there is a lot of interest," he added.
CAPITAL RAISING EXPECTED TO BE DONE THIS YEAR
The Spanish banks which failed the stress test were Banca Civica, Diada, Espiga, Unnim and Cajasur. The worst case scenario included a 28 percent fall in Spanish house prices during 2010-11.
CECA’s charm offensive to reassure investors over the health of the savings banks took place in the Nash Room of London’s Institute of Directors, a salon adorned with portraits of King George V and Queen Alexandra.
Gil said that although the savings banks had relied heavily on financing from the European Central Bank (ECB), they were not shut out of the interbank lending market.
"Yes, Spanish banks have prudently opted to lean on the financing of the ECB. Are Spanish banks being removed from the interbank market. The answer is no."
Gil added he expected that the savings banks, which account for around a half of the assets and deposits of Spain’s financial system, would be able to raise the extra capital by the end of 2010.
"The timeframe is pretty much anticipated to be within the year 2010. The raising of the equity should be in the coming months, it should be pretty quick."
Spain’s savings bank reform, which was passed at the start of July, has given cajas the freedom to offer as much as 50 percent of their capital to private investors and complements a restructuring process aimed at weeding out the weaker groups.
Mergers and take-overs between the savings banks has shrunk the network to 18 from 45 at a cost of around 11.2 billion euros from the government-backed restructuring fund (FROB).
The reform also curbs political influence with the banks, which — along with greater access to private capital — analysts say will help bring the savings banks, set up hundreds of years ago to protect small farmers during years of poor harvest, into line with listed banks such as Santander.
Gil said the reform had reassured investors and added that the savings banks had flexibility over the nature of the capital raising, since they could tap into both debt and equity markets.
On Friday, Banca Civica, one of the five banks to fail the Europe-wide stress tests, said it would place 450 million euros in convertible bonds, becoming the first savings bank to use a new law to access private capital.
American company JC Flowers, a buyout fund specialising in distressed banks, has subscribed to the Civica bond raising but Gil said the Spanish savings bank sector would not just end up as fodder for speculative or predatory investors.
"It’s a little too early to say what the spectrum of equity investors will look like but it will be tremendously ample, tremendously diverse, tremendously stable." ($1=.7746 Euro)
