The Bank of Spain on Wednesday decided to award failed Banco CAM, which was taken over by the central bank in July, to Banco Sabadell.
The procedure for integrating CAM into Sabadell calls for the Deposit Guarantee Fund (DGF) to initially acquire CAM for 5.249 billion euros through a series of capital increases and subsequently transfer it to Sabadell for the nominal sum of one euro. The deal makes it the most costly bank rescue operation ever in Spain.
The total amount includes the 2.8 billion euros injected by the state Orderly Bank Restructuring Fund (FROB) into CAM when it was intervened by the central bank.
The DGF, which is funded by the country's banks, will also bear 80 percent of the losses that accrue from CAM's impaired asset portfolio for the next 10 years after CAM's provisions for these assets have been used up. That will mean that virtually all of the DGF's current funds of 6.593 billion euros will be absorbed.
The government changed the law this year to make the DGF responsible for covering losses from the injection of public money into banks. The purpose of this was to avoid taxpayers having to foot the bill for the recapitalization of the banking system and to prevent any further widening of the public deficit. "The orderly restructuring of Banco CAM is not expected to have any impact on the state budget," the FROB said Wednesday.
The FROB for its part will ensure CAM has sufficient liquidity. CAM owes 7 billion euros to the European Central Bank and has also to return a further 9 billion euros it borrowed in the wholesale market.
CAM came unstuck because of its exposure to the ailing property sector, which has been in a slump since the property bubble burst around the start of 2008. CAM posted a loss in the first nine months of the year of 1.731 billion euros and has a non-performing loan ratio of 20 percent.
Sabadell was the only bank to submit a takeover plan for CAM to the Bank of Spain after other interested parties, including Banco Santander, BBVA and La Caixa, dropped out of the race.
The absorption of CAM will allow Sabadell to displace Banco Popular as Spain's fifth-biggest bank, with a loan portfolio worth 124.785 billion euros, a network of 2,279 branches and staff of 17,042.