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Edition: U.S. Article Comments (0) Save Email Print Reprints Most Popular Most Shared China delays Gates trip in apparent snub for Taiwan 7:38am EDT Iran to sell 45 bln euros, buy dollars, gold -Xinhua 6:43am EDT Hole opens in Guatemala neighborhood, 3 missing 23 Feb 2007 Blagojevich trial may entangle Obama 11:30am EDT Butt test shows U.S. cigarettes high in chemicals 01 Jun 2010 Global stocks, oil rally after U.S. home sales data | Video 11:10am EDT BP tries again to curb oil spill | Video 11:33am EDT WRAPUP 4-BP tries again to curb oil spill, shares stabilize 11:31am EDT Japan PM Hatoyama resigns | Video 10:09am EDT Apple's Steve Jobs finds Foxconn deaths "troubling" 2:27am EDT Butt test shows U.S. cigarettes high in chemicals 01 Jun 2010 Google phases out Microsoft Windows use: report 01 Jun 2010 Iran to sell 45 bln euros, buy dollars, gold -Xinhua 6:43am EDT Japan PM Hatoyama resigns | Video 10:09am EDT Urine test improves prostate diagnosis: study 01 Jun 2010 UPDATE 1-Alabama closes oyster beds, warns swimmers over oil 01 Jun 2010 Woo-hoo! Homer Simpson named greatest TV character in 20 years 01 Jun 2010 Hole opens in Guatemala neighborhood, 3 missing 23 Feb 2007 AT&T to end unlimited pricing plan for mobile data 9:25am EDT Blagojevich trial may entangle Obama 11:30am EDT Spain's savings banks sowed seeds of own destruction Judy MacInnes and Jesus Aguado GUADALAJARA Wed Jun 2, 2010 10:32am EDT Factbox Factbox: Savings banks mergers in Spain 10:31am EDT GUADALAJARA Spain (Reuters) - The ultra modern 12th-floor board room of savings bank Caja Guadalajara offers a bird's eye view of the empty industrial estate around it, a constant reminder of Spain's worst economic crisis for 50 years. World "We moved our headquarters in December from the town center to these offices, thinking there would be faster expansion on the estate," said Ana Maria Liron, branch manager of the bank which manages 365 million euros ($443.4 million) of loans and deposits. "But there is a big slowdown here ... No one expected such a long, hard crisis." Unlisted regional banks such as Guadalajara, which account for about 50 percent of Spain's financial system, have been hit hard by the recession and collapse of the real estate sector after a decade-long boom. To some extent, they have only themselves to blame. "The savings banks' big mistake was that they continued to increase their exposure to real estate developers even when the property bubble had burst," said Jose Carlos Diez, chief economist at local brokerage Intermoney Valores. Jorge Algarate Gonzalo, local sales representative at real estate firm Afirma Grupo Inmobiliario, agreed. "Everybody was living beyond their means," he said. Bad loans at small lenders saw a seven-fold increase in the period from December 2007 to March 2010, according to Bank of Spain and savings banks' data. To pay for their excesses, the regionally controlled savings banks are now immersed in a painful consolidation process aimed at recapitalizing the weaker institutions and halving their numbers from 45 to about 20 by mid-year. GHOST TOWN OF VALDELUZ Just north of Guadalajara, which is about 60 km (40 miles) northeast of Madrid in the autonomous region of Castilla-La Mancha, lies the sprawling Valdeluz housing development, another example of the boom-to-bust fate of Spain's property sector. According to the initial planning permission lodged with the local town hall in Yebes, the development was intended for 8,500 homes, but only around 2,000 have so far been built. Seven schools and a large commercial center were also in the plans but Valdeluz is now no more than a ghost town, with only 1,400 people registered with the local council. Empty streets with half-built blocks of apartments are littered with placards on every corner offering flats for sale with as much as 100 percent bank financing. But a salesman to conduct visits to the show flats is nowhere to be found. "On plan, Valdeluz looked as if it would be a fantastic development ... But the reality is very different," said Maria Angeles Martin, who rents a 120-square-meter three-bedroom apartment for 450 euros a month against 650 euros two years ago. "The main problem is the lack of basic services such as a doctor's surgery," said the 28-year-old new mother as she stocked up on items in the community's only supermarket. As she spoke, two female employees shuffled goods around on full shelves in the otherwise empty Supermercado de Madrid. BANK OF SPAIN PRESSURE Caja Guadalajara's main clients are households and small and medium-sized businesses and its exposure to property developers accounts for about 30 percent of total business. Savings banks also act as charitable institutions and invest part of their profits in social and cultural associations. Caja Guadalajara's net profit plummeted 60 percent in the first quarter to March hit by the continued slump in loan growth, while its bad loans ratio stood at 5.28 percent compared with a Spain banking sector average of 5.30 percent. After rejecting an integration project in the early 1990s with other savings banks in the same region, Caja Guadalajara is about to rubber stamp a merger with Seville-based CajaSol in southern Spain. "There has been much more pressure (on the savings banks) recently from the Bank of Spain as a result of the crisis," Liron said. "The crisis is accelerating the restructuring process but the consolidation was long overdue due to the excessive number of savings banks branches in Spain." The Bank of Spain took control of a small, 146-year-old bank controlled by the Catholic Church, CajaSur, on May 22, in a move interpreted as a warning to the sector to accelerate the merger process or risk a similar fate. Three days later, the central bank further tightened the screws on Spanish banks by proposing even tougher provisioning requirements for real estate assets on their balance sheets. CajaSol has 5,000 employees against its future partner's 325, but only has a scant presence in the Castilla-La Mancha region so there is no overlap, Liron said. The new merged entity, which will have combined assets of 34 billion euros. Caja Guadalajara will offer early retirement to nearly 14 percent of its 325 employees. POLITICIANS TO BLAME? For Caja Guadalajara's clients, the upcoming merger with CajaSol is not a cause for concern. But they show suspicion and scorn that politicians are getting involved. "The savings banks should be privatized and the politicians got rid of. Politicians need to be sent far away from the savings banks," said one client in the bustling town center who did not want to give his name. Wrangling amongst savings banks in different regions vying for the upper hand in a future merged group have been one of the main factors behind the delay in sector consolidation. The Caja Guadalajar-CajaSol tie up will be Spain's first inter-regional merger. "The savings banks are controlled by politicians who don't know what needs to be done," said Antonio Maqueta, a retired 74-year-old businessman. World Add a Comment *We welcome comments that advance the story directly or with relevant tangential information. We try to block comments that use offensive language or appear to be spam and review comments frequently to ensure they meet our standards. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. 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