Three Spanish savings banks – Ibercaja, Liberbank and Caja3 – have approved a merger to strengthen their weak balance sheets. The new merged bank would create the country’s seventh biggest lender, with €120 billion in assets.
The Government has asked the banks to set aside nearly €84 billion to cover bad debts. The merger comes after Bankia, itself made from a merger of seven banks, needed another bailout of €19 billion after a reported €300 million profit suddenly turned into a €3 billion loss.
Investors are worried about the amount of bad loans Spanish banks could be holding and how the government can afford to keep bailing out the struggling financial sector. According to the Bank of Spain, the recession will continue in the second quarter of 2012.
High unemployment, the worst in Europe, and declining retail sales are not helping the situation. Austerity measures, increased taxes and prices mean the average person is struggling.
Sales fell 9.8% in April when compared with the same month last year, after adjustment for calendar differences, and was much worse than had been expected. It is the 22nd consecutive month of declining year-on-year sales.
Banco Popular, already downgraded to ‘junk’ status, are trying to sell their online banking business to raise cash.