UPDATE 1-Andorra dismisses BPA board amid money-laundering probe

(Changes dateline from MADRID, adds details, background)

ANDORRA LA VELLA, March 12 (Reuters) - The Andorra government dismissed the board of Banca Privada d’Andorra (BPA) on Thursday, two days after taking control of the lender to investigate U.S. allegations of money laundering.

Three managers at privately-owned BPA, the fourth biggest of Andorra’s five banks by assets, have also been sacked, a spokeswoman for financial watchdog INAF said.

A government spokesman confirmed the board had been dismissed, but did not give any further information.

BPA did not return several requests for comment.

Andorra, a tiny tax haven nestled in the Pyrenees mountains between France and Spain, relies on the banking sector for about 20 percent of gross domestic product (GDP) and has sought to reassure clients in recent days that other lenders would not be affected by BPA’s troubles and the sector was highly solvent.

At the end of 2013, BPA had assets under management of 7.1 billion euros ($7.5 billion), including its operations in Spain, Panama and elsewhere.

As of Wednesday, the bank had seen outflows of 4-5 million euros since the crisis began, according to the finance minister.

Some bankers in the principality believe BPA could eventually be absorbed by other lenders to stem any contagion.

“The most likely, if there is a sanction of some sort, is that one or several other of the remaining banks will end up taking on BPA’s business,” an Andorran banking source said.

A banker at a rival lender echoed that view, adding it was unlikely any of Andorra’s other four banks would encounter similar issues.

Some BPA customers visiting its headquarters were sanguine about the probe, saying the worst they thought could happen was that BPA could change hands, though others were more worried.

“I’ve come to talk to them and express my concerns,” said Aristonico, a Spaniard who has lived in Andorra for the past 34 years and said he was debating whether to take his savings out of BPA. He declined to give his surname.

The BPA probe also has ramifications for Spain, where the central bank seized control of subsidiary Banco Madrid.

Spain’s treasury ministry will launch its own tax investigation into BPA and the Spanish unit, looking at clients’ operations as well as the banks, an official source said on Thursday.

The Bank of Spain said it had named a new board at Banco Madrid on Thursday after the previous members resigned en masse, and the lender was no longer directly under its control.

$1 = 0.9414 euros Additional reporting by Jesus Aguado and Blanca Rodriguez; Writing by Sarah White; Editing by Julien Toyer and Mark Potter