Forced takeover

The Spanish government's bail out of the Caja de Ahorros del Mediterráneo (CAM) must be seen as a step toward providing the country's savings banks, or cajas, with the liquidity they need as they restructure. So far, two have successfully gone public, Bankia and Banca Cívica. The bailout, costing a total of 2.8 billion euros from the Fund for Orderly Bank Restructuring (FROB), along with a new board to replace those responsible for the Valencia-based bank's problems, will ready the caja for sale.

The intervention was necessary because CAM failed to join a group of cajas led by Cajastur, and was thus starved of funds. It was also required because of its mounting losses and because there was no chance of it accessing the capital it needed. The government bailout at least means that those responsible for CAM's mess have been replaced. The intervention was at the request of the caja's board, but it has been clear for some time that the situation was untenable.

Based in province of Alicante, CAM is known for scores of unsold holiday developments around coastal resorts such as Benidorm, and is one of the cajas that has suffered the most from the collapse of the property market and financial crisis.

Spain's fragmented regional cajas are the most exposed to the country's property crisis after their aggressive mortgage lending policies during Spain's decade-long housing bubble.

CAM tried to attract private investors in June after merger talks with three other savings banks fell through in March, leading it to ask for the state funds.

This is the third such government intervention since Caja Castilla-La Mancha and Cajasur, and should be seen as helping to speed up the restructuring of Spain's savings bank sector. Some have already managed to attract new investment or merged with others that will allow them to meet the new capitalization requirements.

However, the timing of the intervention is delicate. The head of the Valencia regional government, Francisco Camps, was obliged to step down last week, while the international money markets continue to pressure Spain. At the same time, the Bank of Spain seems to have preferred to wait until Bankia and Banca Cívica listed before taking what was an unavoidable decision.

It can only be hoped that the markets see the decision to bail out CAM not as a sign of the weakness of this country's banking system but as proof that the Bank of Spain and the government are working together to strengthen capital requirements and to increase solvency.