* 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 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
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
"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
"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