Spain to nationalise savings banks

Spain plans a part-nationalisation of its weakest savings banks as it seeks to reassure investors a rescue will not weigh on its deficit, sources and reports said on Friday.

A source familiar with the matter told Reuters the government will force debt-laden savings banks to become conventional banks and seek stock market listings to persuade skittish investors that they are good investments.

The state-backed bank restructuring fund (FROB) would then take stakes in the banks - known as cajas - which fail to attract private investment, the source said. Up to now the FROB has functioned as a lender to the cajas.

High levels of bad property loans at the savings banks is seen as a major risk for Spain's government as it aggressively cuts its budget deficit to stave off fears it will need an Irish or Greek-style rescue from the European Union and International Monetary Fund.

Estimates of the cost to recapitalise the savings banks range from 17 billion euros (14.4 billion pounds) to 120 billion euros, with consensus falling in the 25 billion to 50 billion range.