The Bank of Spain is considering paying off billions of euros of debt owed by Caja de Ahorros del Mediterraneo (CAM)

 

The Bank of Spain is considering paying off billions of euros of debt owed by Caja de Ahorros del Mediterraneo (CAM) in an attempt to secure a sale of the failed Spanish savings bank. The central bank took over the Alicante-based lender in July after CAM, battered by the collapse of the country's real estate boom, failed to find private investors. It injected a total of 5.8 billion euros ($7.8 billion) of state funds into the 135-year-old bank with a view to a sale. Since then, the escalation of the euro zone sovereign debt crisis has put even more strain on Spanish banks' ability to find funding, raising concerns over their ability to meet debt obligations. On Thursday, the focus of the debt crisis shifted back to Spain as the government was forced to pay the highest borrowing costs since 1997 at a sale of 10-year bonds. The Bank of Spain is already considering offering would-be buyers of CAM the carrot of protection against its future losses for ten years through the government's bank restructuring fund, central bank sources have said. Now potential purchasers are pushing the central bank to go further and guarantee a hefty amount of liquidity as well, sources close to the deal said. The central bank is thinking seriously about the buyers' demands, one of the sources said. "The Bank of Spain is prepared to meet the eventual buyer's funding needs to meet CAM's short and medium-term debt obligations," said a source with knowledge of the situation. "The central bank does not want to be left holding this baby. This is not part of its policy or strategy," a Madrid-based investment banker said.