–Nationalized Banks To Transfer E45 Billion By Early December
–Other Banks To Transfer Their Bad Loans In 2013
–Updating With Details On Bad Bank’s Capital

PARIS (MNI) – Spanish banking authorities announced Monday that the
country’s newly formed “bad bank” will buy distressed assets from
troubled real estate lenders at an average discount of 63.1%.

The new Asset Management Company (AMC), or SAREB in Spanish, will
be operational by early December, when it is expected to take E45
billion in non-performing assets off the hands of banks that were
nationalized by the state, including BFA-Bankia, Catalunya Banc,
Novagalicia Banco and Banco de Valencia.

Other banks will transfer their trouble assets to SAREB sometime in
2013, which will increase the total held by the bad bank. SAREB will be
authorized to hold a maximum of E90 billion in bad assets, but the Bank
of Spain’s Deputy Governor Fernando Restoy said at a press conference in
Madrid that he expected the figure to be approximately E61 billion.

Restoy, concerned to protect the value of assets remaining on the
banks’ books, was quick to say that the discounted price at which the
bad loans would be transferred to SAREB should not be considered as a
market price or any kind of reference value.

Spain’s creation of the bad bank was one of the conditions in a
July agreement it signed with its EU partners to obtain aid of up to
E100 billion to help recapitalize its banks. The deal requires that a
bad bank take over the moribund assets of real estate and construction
lenders that take public funds to help them recapitalize.

Following better-than-expected bank stress test results in late
September, which showed total capital needs of just under E60 billion,
the Spanish government said it would request only E40 billion from the
EU aid program and that the rest would come from private sources.

Restoy estimated that the transfer of troubled assets to SAREB
would reduce the capital needs of Spanish banks by E5 to E6 billion.

“The creation of SAREB will substantially reduce any uncertainty
with regard to the viability of the institutions that require public
aid, allowing them to concentrate on the management of their principal
business,” Spain’s bank rescue fund, FROB, said in a press release on
Monday.

FROB noted that, “the overall goal of SAREB will be the management
and orderly divestment of the portfolio of assets received, maximizing
their recovery, across a time horizon of 15 years, which is the maximum
lifespan for this company.”

The bad bank will have capital equal to 8% of the assets it
assumes. That capital will come from senior debt guaranteed by the
state, as well as from private investors who can take equity positions
or buy subordinated bonds issued by the new entity.

A majority of SAREB will be held by private investors. The state,
via the FROB, will take a minority position. Banks that transfer their
non-performing assets to the bad bank will not be allowed to be
shareholders in it and will not be represented in its administration.

Restoy said that any debt taken on by the bad bank would not alter
Madrid’s sovereign debt ratio, which is still well below the Eurozone
average but has been rising sharply over the past two years.

SAREB is projected to yield a return on equity of 14% to 15% over
the course of its existence. “We think the long-term profitability will
be significant,” Restoy said.

–Paris newsroom, +331-42-71-55-40; bwolfson@marketnews.com

[TOPICS: M$S$$$,M$X$$$,M$$EC$,MGX$$$,M$$CR$,MT$$$$]