Caja Espana, Caja Duero integrate to cut costs

MADRID, May 21 (Reuters) - Spanish savings banks Caja Espana and Caja Duero have agreed to start a process of integration aimed at cutting costs ahead of their eventual merger, a Caja Espana spokesman said on Thursday.

"For the time being, we are working on integration to preserve the independence of our brands and headquarters, but with the objective of sharing risks and moving forward with cost-cutting ahead of a merger," the spokesman said.

As Spain's economy sinks deeper into recession and soaring unemployment fuels an increase in bad loans, analysts have flagged that consolidation amongst the country's 45 savings banks is inevitable.

Caja Espana had nearly 23 billion euros of assets at end-2008, with a bad loans ratio of 3.91 percent, while Caja Duero's assets totalled about 21 billion euros with bad loans running at 3.65 percent.

"I am not sure of the extent of the possible synergies between the two savings banks, but it is inevitable that in the end they will get rid of branches to cut costs and they may even sell some of their industrial stakes to improve solvency," Renta4 analyst Nuria Alvarez said.

Caja Duero's industrial stakes include 0.68 percent of Spanish power firm Iberdrola (IBE.MC) and 6.01 percent of food group Ebro Puleva (EVA.MC).

Caja Espana also holds a stake in Iberdrola and 5.04 percent of Ebro Puleva.

Consolidation among Spain's savings banks is being hampered by the fact they are controlled by regional governments, which often drags politics into any merger talks.

Economy Minister Elena Salgado said on Wednesday that the government will allow the regional governments to continue to hold sway over the savings banks, something which will not help to advance sector consolidation.

The Bank of Spain has already said that just cutting costs may not be enough to maintain the profitability of some of the savings banks.

(Reporting by Jesus Aguado; writing by Judy MacInnes; editing by John Stonestreet)