Bank of Spain steps in to help Spanish building society
Yesterday the Bank of Spain decided to intervene to help save the Castilla-La Mancha (CCM) building society. This is the first time that the bank of Spain has needed to intervene in a bank or building society since the case of Banesto in 1993. CCM had conceded a total of 19,536 million euros in loans by the end of 2008 and had deposits worth 17,265 million euros which are guaranteed by the Guarantee Fund for Deposits up to a value of 100,000 euros per client.
Under Spanish law the Bank of Spain is allowed to intervene in Banks or building societies which find themselves in danger of losing their liquidity. This is why the chairman of the building society, Juan Pedro Hernández Moltó, was called to attend an urgent meeting with officials from the Bank of Spain was notified of the bank’s decision to intervene before tomorrow’s meeting of CCM directors which was to discuss possible solutions to the building society’s problems.
CCM was created in 1992 following the fusion of three building societies in the region of Castilla- la Mancha. The new building society made a profit of 29.8 million euros in 2008 which is 87.1% less than in 2007. The heavy losses incurred by CCM were put down to the increase losses in its financial assets of approximately 140 million euros. Amongst others CCM had conceded loans to companies which later went into administration such as Martinsa-Fadesa.
The intervention by the Bank of Spain has interrupted the negotiations for the possible fusion between CCM and the Andalucian building society Unicaja which began in February this year. CCm’s situation was viewed as precarious by analysts in the sector due to its exposure to the property sector and loan defaulters. However, the fusion between CCm and Unicaja would have created the fifth largest building society in terms of the volume of deposits of its clients and assumed profits.
In addition it would have been the first building society which consisted of financial entities belonging to different autonomous regions of Spain. Yesterday Unicaja refused to comment on CCM’s situation.
After the intervention by was announced yesterday the first measure that was introduced was the substitution of the administrators of CCm by others designated by the Bank of Spain. This measure is designed to ensure that CCM fulfils its obligations and to give complete peace of mind to depositors and creditors. The supervisor of operations appointed by the Bank of Spain reminded people that CCM is still a solvent organization with net positive figures but that solutions to guarantee its future were required. The new administrators of CCM can,amongst other measures, name a new team of directors or concede or revoke powers for the development of CCM’s day to day operations.
The Bank of Spain defended its actions saying that the decision to intervene in CCM was taken after conversations held with the building society over the last few weeks came to nothing.
The now ex-chairman of CMM called for its clients to trust in the building society ‘now more than ever’ because it was now in the ‘best hands possible’. He added that CCM’s offices would open today as usual.
For its part the Bank of Spain insists that the Spanish banking sector remains solid although it is not immune to the effects of the International financial crisis.
CMM represents less than 1% of the assets in the Spanish banking system. It has interests in 32 diverse businesses and has 582 branches in Spain. Its workforce numbered 2,292 in 2007 and its financial donations to various social activities and organizations was estimated to be 56.7 million euros in 2007.