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29 October 2012

WSJ: Spain's bad bank to buy up assets


Spain's so-called bad bank will buy billions of euros of distressed loans and foreclosed property from commercial lenders for around half the book value, a discount that could weigh on the finances of its weakest banks as the government decides whether to seek assistance from the bailout fund.

New details of the government-run asset management firm's plans were released Monday as Prime Minister Mariano Rajoy insisted again that Spain, the frailest of Europe's large economies, doesn't need a new bailout at the moment.

The bad bank, known by its Spanish-language acronym SAREB, was set up as a condition of that bailout; all banks that receive European aid will be obligated to transfer assets to the bad bank. SAREB, which is set to begin operations on December 1, will absorb soured investments that have dragged down the balance sheets of Spanish banks since the collapse of the country's housing market four years ago.

Fernando Restoy, head of Spain's bank-bailout fund, said SAREB will likely purchase about €60 billion of toxic assets using Spanish resources and some of the funds allocated under the bank-bailout agreement.It will apply an average 63 per cent discount on land and housing units and an average 46 per cent discount on real estate loans, he said, and will aim to sell the assets to investors over the next 15 years, with a return on investment of at least 14 per cent for any investors in the bad bank. SAREB is looking to manage these problematic assets effectively and conservatively", Mr Restoy said. "This must be a profitable company, so the use of public funds is minimised."

Independent analysts warn, however, that the bad bank may face a lack of appetite for Spanish assets at a time when the country's economy is deep in a recession, which the government expects to last well into next year, while house prices are falling at an annual rate of around 10 per cent. In addition, analysts say SAREB's operations may be complicated by the sheer variety of assets it will handle.

Full article



© Wall Street Journal


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