VZCZCXRO4187
RR RUEHAG RUEHDF RUEHIK RUEHLZ RUEHROV RUEHSR
DE RUEHMD #0336 0891652
ZNR UUUUU ZZH
R 301652Z MAR 09
FM AMEMBASSY MADRID
TO RUEHC/SECSTATE WASHDC 0451
INFO RUCNMEM/EU MEMBER STATES COLLECTIVE
RUEHLA/AMCONSUL BARCELONA 3921
RUCPDOC/DEPT OF COMMERCE WASHDC
RUEATRS/DEPT OF TREASURY WASHDC

UNCLAS MADRID 000336 
 
SIPDIS 
SENSITIVE 
 
STATE FOR EUR/WE, EEB/IFD/OMA 
TREASURY FOR OIA/OEE/T.O'KEEFE,D.WRIGHT 
COMMERCE FOR 4212/D.CALVERT 
 
E.O. 12958: N/A 
TAGS: EFIN PGOV SP
SUBJECT: BANK OF SPAIN TAKES OVER CCM SAVINGS BANK 
 
REF: MADRID 323 
 
1.(U) On Sunday, March 29, the Bank of Spain took over the 
Caja Castilla La Mancha (CCM) savings bank, with the GOS 
authorizing a guarantee of up to 9 billion euros  to cover 
any losses.  The Caja,s management was replaced by three 
Bank of Spain officials.  A GOS statement asserted that CCM 
was solvent but faced a temporary liquidity problem.  Second 
Vice President and Economy/Finance Minister Solbes told 
reporters that CCM had only 1% of financial system assets. 
He added that no other financial institutions were in similar 
situations but acknowledged that if liquidity problems 
continued over the long term, other banks would not be 
immune.  He expected that no more than two or three billion 
euros of the guarantee would be needed.  This is Spain,s 
first financial institution takeover since 2003 and its 
largest since 1993.  Bank stocks fell Monday morning, though 
by about the same amount as bank stocks in other European 
markets. 
 
2.(U) CCM, formed in 1993 from the merger of three cajas, has 
over a million depositors and 500 branches around the 
country.  At the end of 2008 it had around 20 billion euros 
of loans outstanding.  Run by former ruling party Congressman 
Juan Pedro Hernandez Molto, it had lent heavily to property 
developers and had expanded rapidly outside its original 
region.  According to figures it reported to the Bank of 
Spain, it had a significantly lower capital ratio than other 
similarly-sized banks and cajas and the second highest rate 
of loan delinquency. 
3.(U) Central Bank intervention became necessary after GOS 
efforts to encourage a merger between CCM and Unicaja (also 
linked to the PSOE, but based in the Andalucia region) fell 
through at the end of last week.  A frequently reliable 
online newspaper reported that Unicaja backed away when 
CCM,s auditors, Ernst & Young, refused to sign the 2008 
accounts that CCM proposed to submit to the Bank of Spain on 
March 31. 
4.(SBU) Comment:  In addition to its economic effects, the 
takeover is likely to be a political black eye for the GOS. 
Many cajas are controlled by regional or provincial 
governments and are politicized.  Cajas in general are also 
more exposed than banks to the troubled real estate and 
construction sectors.  CCM,s failure and perceptions that 
Hernandez Molto,s status as a PSOE insider influenced the 
GOS, efforts to save it give the opposition PP a 
counterargument when it faces criticism over the longrunning 
and unseemly battle between the PP president of Madrid region 
and Madrid,s PP mayor  for control of Caja Madrid (the 
country,s fourth largest financial institution).  Also, 
coming as it does shortly before the London economic summit, 
it reduces President Zapatero,s ability to claim that 
Spain,s cautious banking regulation has kept it safe from 
the effects of the financial crisis.  In addition, there are 
unconfirmed reports that last week,s sudden departure of 
Central Bank Deputy Governor Jose Vinals was related to 
Vinals, conflict with Governor Miguel Angel Fernandez 
Ordonez over support for CCM.  End Comment. 
CHACON