Nationalization looms as caja seeks state aid

The Caja del Mediterráneo (CAM) savings bank, which is heavily exposed to the ailing real estate sector, faces being taken over by the Bank of Spain and offered to its competitors. CAM's management said Friday it would seek 2.8 billion euros from the state Orderly Bank Restructuring Fund (FROB) to meet the new solvency requirements.

The development emerged after CAM's proposed merger with three other local cajas to form Banco Base fell apart after the Alicante-based savings bank was abandoned by its erstwhile merger partners.

The central bank is expected to remove CAM's management and eventually offer the caja to some of the stronger local banks, with the leading contender being Banco Santander. BBVA and La Caixa are also possible candidates to take over the reins at CAM.

Cajastur, Caja Extremadura and Caja Cantabria pulled out of the proposed tie-up with CAM this week after Banco Base asked for 2.8 billion eurosfrom the FROB, almost twice the amount the Bank of Spain estimated would be required to meet the new minimum core capital ratio of 10 percent.

CAM said it also needed the 2.8 billion eurosfrom FROB to pass the stress tests being carried out on European lenders.

Meanwhile, Fitch on Friday cut CAM's long-term rating to junk-status BB+ from BBB+ as a result of the caja's need for outside help. The ratings agency also cited the deterioration in the quality of its assets.

Fitch also put Cajastur and Caja Extremadura's ratings under review with negative implications. The ratings agency does not cover Caja Cantabria. The three cajas are expected to try to pursue an alliance among themselves.