Banks, Insurers to Invest in Spain ‘Bad Bank’ With 15-Year Life

Spain wants banks, insurers and other investors to control Spain’s so-called bad bank, which will digest soured real estate assets of lenders over 15 years, Economy Minister Luis de Guindos said.

Private investors will hold at least 55 percent of the vehicle’s equity and subordinated debt, de Guindos told Parliament in Madrid today. Nationalized banks, which include the Bankia (BKIA) group, will be the first to transfer assets to the bad bank starting in December, he said.

Spain is setting up a bad bank, a mechanism also used in countries such as Ireland, to house the real estate of lenders to help shed assets that consume capital and to create conditions for loan growth. The creation of the vehicle follows the publication on Sept. 28 of independent stress tests that showed seven Spanish lenders had a capital deficit of 59.3 billion euros ($76.6 billion) in an adverse scenario.

“The transfer price is linked to the real economic value of the assets and will be established through a thorough revision of their quality,” de Guindos said. “This price will ensure the profitability of the company and will make possible the incorporation of private investors.”

The vehicle will pay banks that transfer assets with debt that they can use as collateral for loans from the European Central Bank, de Guindos said.

There will also be a tranche of equity made up of capital and subordinated debt bought by the government’s bank rescue fund and private investment funds, he said. That tranche will amount to 10 percent of the company’s assets, he said.

To contact the reporters on this story: Charles Penty in Madrid at cpenty@bloomberg.net; Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editor responsible for this story: Frank Connelly at fconnelly@bloomberg.net

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