3rd UPDATE: La Caixa Plans To Spinoff Bank Operations To Criteria

Spanish savings bank La Caixa Thursday said it plans to transfer its banking business to listed unit Criteria CaixaCorp SA (CRI.MC) in a bold restructuring effort to improve management and its access to capital markets.

The move by Barcelona-based La Caixa, the biggest and healthiest of the large savings banks, could set an example for other "cajas" to follow, analysts say. In the wake of the international financial crisis, Spain's government and central bank are pressuring the mutually owned cajas to spin off their banking operations into incorporated companies that can trade on the stock market to improve accountability and funding options.

In a regulatory filing, La Caixa said it will transfer its banking business to Criteria, whose name will be change to CaixaBank. CaixaBank will give La Caixa a controlling stake as well as some of its biggest industrial shareholdings, like its stakes in Gas Natural SDG SA (GAS.MC) and Abertis SA (ABE.MC). After CaixaBank issues EUR1.5 billion worth of convertible shares to shore up its capital base, it will have a core Tier-1 capital ratio of 10.9% and La Caixa will have an 81% stake in CaixaBank.

CaixaBank will be Spain's third largest listed bank just behind local giants Banco Santander SA (STD) and Banco Bilbao Vizcaya Argentaria SA (BBVA). La Caixa will maintain the social services traditionally provided by Spanish savings banks and will finance them with its industrial stakeholdings.

Unprecedented economic turmoil and a rising pile of bad loans linked to the implosion of the country's once mighty real estate sector is forcing the cajas to seek fresh alternatives to raise capital, and also pursue market discipline to improve transparency and foster efficiency.

On Monday, the government raised capital requirements for all financial institutions and said it would require some cajas to have even higher levels. The move aims to accelerate the transformation of cajas into listed banks.

The government also overhauled regulations to allow the partial nationalization of ailing cajas and enable the injection of fresh capital into them.

The clean-up of banks is a key part of Spain's effort to shore up investor confidence in the euro zone's fourth-largest economy. Spain's borrowing costs sky-rocketed after Ireland's finances buckled under the weight of massive loan losses among its banks. Ireland is also suffering from a massive housing bust.

With close ties to local communities and often controlled by local governments, Spain's cajas have borne the brunt of the collapse of Spain's decade-long housing boom. Their fast-rising bad debt levels, combined with a lack of transparency, have stoked investor concerns and created severe financing difficulties for both the cajas and the country's listed banks.

Last year, the Barcelona-based giant approached listed Catalan rival Banco Sabadell SA (SAB.MC) to discuss a potential merger that would have given La Caixa a market listing and become a full bank, according to people familiar with the situation.

The talks between the two companies didn't lead to formal negotiations, as the overlap and geographical concentration of the two banks in their home Catalan markets across northeastern Spain would have resulted in massive layoffs and risk concentration at a time of challenging market conditions, these people added.

-By Santiago Perez, Dow Jones Newswires; (34) 91 395 8120; djmadrid@dowjones.com

-Jonathan House contributed to this article.

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