Spain says bad bank attracting interest from foreign investors
By Jesús Aguado | November 17, 2012 8:49 AM EST
Spain's bad bank is generating a lot of interest among foreign investors, an economy ministry source said, and the government will meet with five investment banks on Monday to start the search for private capital.
The bad bank could go ahead with just domestic participation but non-resident investors would give the vehicle credibility, the source said on Friday.
Talks with domestic investors were ongoing, and the government hopes to meet five investment banks as of Monday in the search for private interest, the source added.
Spain has set up a bad bank to siphon off toxic real estate assets dating from a 2008 property crash from balance sheets as a condition of receiving up to 100 billion euros (80.2 billion pounds) of aid in a European bail-out of the sector.
The Spanish government expects to apply for between 35 billion and 40 billion euros of that aid.
The reduced final bill takes into account the transfer of assets to the bad bank, capital raising operations, such as Popular's
A source involved in the negotiations said on Friday that Bankia's junior debt holders will likely take a loss of less than 50 percent.
The bad bank, known as Sareb, is due to be up and running by the end of November and will have a maximum asset value of 90 billion euros.
It will initially receive assets from four state-rescued banks, including Bankia
The bad bank will have an initial equity tranche of 3.9 billion euros. Around 800 million euros of that will be capital and 3.1 billion euros will be subordinated debt.
In a second stage, after including the assets of a further group of lenders in need of public aid who will be forced to transfer assets, the total volume could be worth around 60 billion euros over time and the equity tranche could go up to 5 billion euros.
"In the end our objective is that international lenders will have to invest around 500 million euros of pure capital," the source said.
The rest of the bad bank will be financed by senior state-backed bonds with an average maturity of 1.9 years priced at Euribor plus 200 basis points, according to the source. These can be used as collateral with the European Central Bank to get liquidity.
Government sources said Spain's bank restructuring fund, the FROB, could use part of the European aid to invest in the bad bank as laid out in the Framework Agreement for Financial Assistance (FAFA), subscribed to in July as part of the banking bailout. The fund did not therefore need to tap the markets, the sources said.
Sources told Reuters earlier this month that Spain's main banks, Santander
Spain's government wants to keep its stake in the bad bank below 50 percent to reduce the burden on state finances and a direct impact on public debt and expects private investors to own at least 55 percent.
It is applying steep discounts to property assets transferred into the bad bank and has pledged significant returns in a move to lure reluctant investors.
It has also promised tax breaks for investors.
Since peaking in 2007, housing prices have fallen around 30 percent on average but analysts consider the bottom of the market may still be two years off, with prices potentially falling a further 20-30 percent.
The bad bank will operate for up to 15 years and will mainly manage bad loans, repossessed homes and buildings and unfinished or unsold housing developments.
Madrid wants the bad bank to have a return on equity of 14 percent to 15 percent in a conservative scenario, though Spanish authorities do not rule out the vehicle registering losses in the first years of its existence.
(Reporting By Jesus Aguado,; Editing by Sonya Dowsett, Mike Nesbit and Andrew Hay)
Most Popular Slideshows
- NFL MNF: Pittsburgh Steelers 30, Houston Texans 23 [PHOTOS]
- 2014 MLB World Series Game 1: San Francisco Giants 7, Kansas City Royals 1 [PHOTOS]
- 2014 MLB World Series - Game 2: Kansas City Royals 7, San Francisco Giants 2 [PHOTOS]
- NFL Thursday Recap - Denver Broncos 35, San Diego Chargers 21: Peyton Manning Has 3 TDs In Easy Win [PHOTOS]
Join the Conversation
- Tourre on stand says email in SEC case 'not accurate'
- Syrian authorities blocking access to needy in Homs - Red Cross
- Faith in European Union at low ebb, EU poll says
- Former UBS banker gets 18 months, $1 million fine, for muni bid-rigging scheme
- U.S. judge halts challenges to Detroit's bankruptcy bid
- Xiaomi Redmi 1S vs. Sharp Aquos Crystal – Specifications, Features And Price Showdown
- ASUS Releases A Teaser Indicating The Arrival of New Zenfone and ZenWatch On October 28
- Boy Stoned To Death For Alleged Rape, Victim Receives Dowry From Militants
- Three Dual SIM Samsung Galaxy Note 4 Duos Variants Comes To China
- Russia is Creating Underwater Combat Robots to Protect its Arctic Territories
- ‘Lone Wolf’ Attack on Canada Parliament Hill Could be ISIS-Related
- Android Lollipop 5.0 Confirmed for Nov 3 Rollout as Nexus 6 Global Release Date is Delayed – Reports