Spain to launch `bad bank' in December

Last Updated: Thu, Oct 04, 2012 06:56 hrs

The so-called "bad bank" created to house Spain's toxic real-estate assets will start operating in December and will feature greater participation by private investors than initially announced.

Economy Minister Luis de Guindos said private investment will account for at least 55 percent of the equity and subordinated debt in the new asset management company, where non-performing property loans and other impaired assets are to be segregated.

Private financial institutions, insurance firms and other qualified investors, therefore, will be the majority shareholders in the "bad bank", aimed at spurring loan activity in the Iberian nation, while Spain's state-backed FROB bank-restructuring fund will have a minority stake.

Spain's government approved the asset management company - a condition of this summer's euro-zone loan of up to 100 billion euros ($129 billion) for the country's ailing banks - Aug 31.

In an appearance before the Economy Committee of the lower house of Parliament, De Guindos said the transfer price of non-performing loans to real-estate developers and foreclosed properties will be linked to their "real economic value" and determined following a "thorough revision of their quality".

The minister said the bad bank will be run by an independent management company, whose tasks will include efficiently managing the process of putting seized real estate back on the market.

He said struggling banks that will be meeting their capital shortfalls with recourse to state aid will have the option of segregating their repossessed real-estate assets and performing and non-performing loans to property developers into the asset management company.

After speaking to the committee, De Guindos told reporters that most of the lenders that will offload their bad investments in the asset management company will be those controlled by the FROB: BFA-Bankia, Catalunya Caixa, Novagalicia Banco and Banco de Valencia, as well as other smaller banks receiving state assistance.

The bad bank will have a 15-year lifespan.

During his appearance before the Economy Committee, De Guindos praised stress tests performed by US consulting firm Oliver Wyman, which said in a report released late last month that Spain's 14 largest banks would collectively need 53.74 billion euros ($69.34 billion) in additional capital in a worst-case economic scenario.

That figure is far short of the 100 billion euros in assistance euro-zone finance ministers agreed to make available to Spain's ailing financial institutions.

The "credibility" of the audit is indisputable because of the "detailed analysis" carried out by Oliver Wyman and the severity of the adverse scenario contemplated in the stress tests, De Guindos said, adding that the report will help alleviate market concerns about the health of Spain's financial sector.

The collapse of a massive real-estate bubble in the context of the global financial crisis sent Spain into a severe economic decline.

The country is currently in recession for the second time in three years and the unemployment rate stands at nearly 25 percent overall and more than 50 percent among young people.

Numerous businesses have failed amid the slump and tens of thousands of families have been evicted from their homes after falling behind on their mortgages.

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