Spain to Decide in Early 2012 on Bad Bank, PP Official Says

Dec. 8 (Bloomberg) -- Spain’s new People’s Party-led government will decide early next year whether to create a so-called bad bank to remove toxic assets from lenders’ balance sheets, a party official said.

The PP, which is due to take power later this month after winning the Nov. 20 general election, hasn’t yet decided whether it should create the vehicle to buy real-estate assets from lenders, said the official, who declined to be named because the deliberations aren’t public. Real-estate assets need to be valued at their true price, and the process will affect some banks and not others, he told reporters today.

The PP, which won the election by a landslide, has pledged a “cleanup and restructuring” of the country’s banking system to help restore the supply of credit in an economy where lending is shrinking at its fastest pace on record. Spanish banks, burdened with 176 billion euros ($234 billion) of what the Bank of Spain terms “troubled” assets linked to real estate, are fighting to preserve profits as lending slumps and their cost of financing surges.

Prime Minister-elect Mariano Rajoy has asked for at least two papers from academics on how to create a bad bank, two people with knowledge of the matter said on Nov. 25. Both proposals outlined mechanisms for a state-backed agency to buy soured assets such as real estate from banks at a discount, said the people.

According to one of the proposals, Spain needs external financing of about 100 billion euros to absorb the cost of transferring assets to the bad bank and should seek it from the European Financial Stability Facility or the International Monetary Fund, one of the people said. Both options call for valuations of real estate to be made by independent appraisers, the people said.

To contact the reporter on this story: Angeline Benoit in Madrid at Emma Ross-Thomas at

To contact the editor responsible for this story: Craig Stirling at