Spain cajas clean-up, fundraising moves cheer mkts
* Real estate exposure clearer now
* Potential losses huge but provisions grow
* Four savings banks to sell shares
By Carlos Ruano and Tomas Gonzalez
MADRID, Feb 1 (Reuters) - A long-awaited clearer view of the enormous potential losses facing Spain's savings banks and signs efforts are being stepped up to return the sector to financial health got the thumbs-up from markets on Tuesday.
The Spanish 10-year bond yield ES10YT=TWEB spread over German benchmarks DE10YT=TWEB fell to its lowest level since November and Madrid share prices rose as bond investors digested hard data on the banks' exposure to the country's ailing property sector.
That helped maintain positive sentiment after the two largest of the privately held savings banks said in recent days they would seek to offload part of the financing burden onto stock markets via equity listings.
"The Spanish banks are reducing their exposure to the property market and bad loans, and that situation looks to be an awful lot better than the market had anticipated," a London-based trader said.
"That move is dragging all the other peripheral spreads tighter, it's a case of follow my leader."
>^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ To read a DEALTALK on the cajas [ID:nLDE70U2B8]
Considered a potential weak spot as Spain battles to rein in its deficit, the savings banks -- or cajas -- had until Monday to reveal how much property is on their books as well as bad loans after a construction bubble burst in 2008. [ID:nLDE70I1VL]
Investors were concerned the banks were hiding huge losses that would eventually trigger a state rescue and push Spain into needing a bailout like Ireland or Greece.
The reports from the cajas revealed almost 58 billion euros in bad and substandard loans to builders and real estate companies, with provisions averaging higher than 30 percent.
The cajas also reported billions of euros in property assets taken from companies that went bust, of which more than half are undeveloped lots that are considered very difficult to unload.
Though the numbers were large they filled an information vacuum, and markets responded positively, encouraged by reams of often upbeat analysis published overnight by the media and finance professionals.
"Part of the problem was that they weren't publishing data, so the punishment on a general level, of the country risk, was exaggerated," said an analyst at a Spanish bank, who did not want to be named.
BOOST CORE CAPITAL
The government stepped up its cajas clean-up plan last week, ordering them to boost core capital to 8 percent by September or be partly nationalized, and four cajas have said they are going to seek public listings or moved banking assets into an already listed entity. [ID:nLDE70R1T1]
On Tuesday, the benchmark Ibex stocks index rose 1.04 percent at 1200 GMT, led by giant banks Santander (SAN.MC) and BBVA (BBVA.MC), whose shares often rise when Spanish sovereign prices rise, while the 10-year Spanish/German yield spread fell 17 basis points to 193 bps.
The 45 cajas, regionally based and in some cases dating back more than 100 years, have traditionally been run by politicians and social groups and used to fund pet projects.
The government forced them into a round of mergers last year -- 17 remain -- and changed laws so that they could raise capital from private investors.
But they have struggled to find investors, partly because of doubts that they are still subject to political influence.
The government has pressured the cajas to go public, forcing them to open their books as they seek capital.
"Our evaluation is positive because there is more information and transparency, but most of all because the government has put more pressure on the sector to raise solvency ratios," said an analyst at Espirito Santo bank
The data from the savings banks varied widely, with coverage ratios of bad and risky loans ranging from 18 percent to 39 percent.
"A key test of whether this is enough or not will be the ability of Spanish banks to issue wholesale funding at cheaper levels and to raise equity from the markets," Nomura equity research analyst Daragh Quinn said in a report.
(Additional reporting by Fiona Ortiz; Editing by John Stonestreet)
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