Banco CAM takeover receives EC approval

EC approval for CAM rescue

The European Commission has approved a 2.4 billion euro capital injection for Banco Caja de Ahorros del Mediterraneo (CAM) from Spain’s bank bailout fund, along with a 10 year government guarantee to cover any future loses.

CAM was seized by Spain’s central bank last year after it’s toxic property loans wrecked it’s business. Banco Sabadell then agreed a takeover deal of CAM for one euro in December.

“The disappearance of Banco CAM from the market as an independent entity, the sale of its banking business to Banco Sabadell and the deep restructuring foreseen should ensure long- term viability without continued state support,” the commission said in a statement.

Before the deal with Sabadell becomes effective CAM must cancel a 3 billion euro liquidity line received from the bailout facility, the EU said. CAM also obtained EU permission to get as much as 700 million euros if it can’t benefit from deferred tax assets following the takeover.

As part of the process approximately 450 branches will be closed, affecting 2,200 staff, 40% of which will be in the Valencia, Murcia and Balearic regions. These closures are expected by the end of 2013.

The closures will also affect the group internationally. Sources report that Banco de Sabadell recently asked the Florida Office of Financial Regulation to approve the acquisition and subsequent closure of CAM’s international agency branch in Florida.

EU inspectors examine Spain’s finances

The European Commission (EC) has sent inspectors to examine Spain’s finances after the deficit for 2011 came in much higher than expected.

Spain’s deficit for 2011 was 8.5%, 2.5 points above the 6% that the European Commission was expecting.

Madrid also failed to meet it’s 4.4% target finishing the year at 5.8%.

Amadeu Altafaj, the EC spokesman on economic and monetary affairs, said ”Technicians of the European Commission have been in Madrid this week to collect information on the (2011) public accounts,”

“It is a normal practice in all countries under an excessive deficit procedure,” he added.

Monetary Affairs Commissioner, Olli Rehn, has requested more details of the budget for 2011 and the final figures as some officials in Brussels have privately suggested that Rajoy’s new government may have overestimated the deficit for political reasons.

Deputy Prime Minister, Soraya Saenz de Santamaria, said the government have provided all information requested by the Commission.

“We gave them as much information as we could, with the maximum transparency… Not only did we give the data they asked for but also the mechanisms we’re putting in place so that these circumstances don’t happen again,” she said at a press conference.

Commission President, Jose Manuel Barroso, said he believed Spain would present a 2012 budget “fully in line with EU budget rules”.

The commission are insisting that Spain present a budget based on the 4.4% target adding that there will be no discussions on relaxing it until May.

One eurozone official said that the commission could accept it if the target could not be reached due to worse than expected growth but only if all efforts to reach it had been made first.

Recession for Spain in 2012, says EU

The European Commission have said that Spain’s economy will fall into recession once again during 2012, adding that additional austerity measures may worsen the situation.

Following a 0.7% expansion of the economy in 2011 the EU predict a 1% contraction this year. The commission had previously predicted growth of 0.7% for 2012.

“Additional fiscal measures in the forthcoming budget may significantly change the picture,” the commission said.

Spain’s efforts to reduce the deficit gap are being stifled by a fall in growth since the final quarter of 2011 and the International Monetary Fund (IMF) expects Spain’s economy, the fourth-largest in the Euro zone, to contract 1.7% this year. This will be the second official recession in as many years and will make it even harder for Rajoy’s government to meet it’s targets.

Private spending will be “significantly weaker” this year, exacerbated by “persistently high” unemployment across the country, the commission said. However, they also expect exports to be “relatively resilient,” as inflation slows to 1.3%, below the euro-average, and down from 3.1% in 2011.

Mariano Rajoy, in power since election victory in November, has already increased taxes and cut spending in efforts to reduce the deficit by around 15 billion euros. He has been waiting the EU forecasts before drafting the budget next month which is expected to contain further spending cuts and tax increases – all part of the plan to reduce the deficit gap to the EU target of 4.4%, a target Rajoy thinks impossible.