Spain’s bad bank too big to work

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    • #57119

      “When managing tens of thousands of assets scattered across the whole of Spain, big is not beautiful, it’s sheer chaos,” said Mikel Echavarren, chairman of Irea, a Madrid-based financial adviser. A large, “clumsy” bad bank will be at a “tremendous” disadvantage and will generate losses that Spaniards will have to pay for.
      The inability to offer credit to prospective buyers is a major handicap as the article explains.

      So Spain faces years with vast quantities of cheap unwanted property sitting on the balance sheets of the ‘SAREB’ declining in value. That will likely depress the chances further of future private sales ever taking place unless the property has some special qualities.

      So if you buy a property now be very aware you will not be able to resell it for years. It also begs the question what will the banks do with their properties worth less than €100k? Give ’em away?

    • #113119

      bulldoze them all and create orange groves, green spaces, parks with benches for people to enjoy the laid back Spanish way of life….walking with family, talking, relaxing and enjoying the slower pace of life.

      When people enjoy living in Spain they’ll talk it up and encourage others to buy into the lifestyle.

      There are just too many properties and the whole costas is covered in cement and ugliness……

      Spanish property needs a complete overhaul and a really good non Spanish person doing their PR!!

    • #113199


      Spain’s bad bank lures investors with steep discounts

      (Reuters) – Spain on Monday said it would apply steep discounts to property assets transferred into a so-called bad bank and pledged significant returns in a move to lure reluctant investors.

      The government is setting up an asset management company, or bad bank, for up to 90 billion euros worth of real estate assets sitting on lenders’ books after a property bubble burst five years ago.

      The bad bank is a condition for Spain to receive up to 100 billion euros in European aid for crippled lenders. Spain is now considering seeking EU help to lower its borrowing costs and improve its finances.

      “We’re looking at transfer prices which represent a significant discount,” Bank of Spain Deputy Governor Fernando Restoy told a news conference.

      “The business strategy of the asset management company is based on medium-term returns and we believe that the returns will be significant.”

      The prices at which assets will be transferred were designed to strike the right balance between being low enough to attract private investors but not so low as to precipitate bigger losses for sound banks.

      Property loans will be moved in to the bad bank at an average discount of 45.6 percent, while foreclosed assets will be moved at an average discount of 63.1 percent, he said.

      Discounts will range from 32.4 percent for loans attached to finished properties to 79.5 percent for undeveloped land.

      The bad bank will have a return on equity of 14 percent to 15 percent in a conservative scenario, Restoy added.

      Spain wants to keep its stake in the bad bank below 50 percent to reduce the burden for state finances and avoid an impact on public debt, and expects private investors to own at least 55 percent.

      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 Bank of Spain said it was negotiating with domestic and foreign entities to take a stake in the scheme.

      Sources told Reuters earlier this month that Spain’s main banks, Santander (SAN.MC), BBVA (BBVA.MC) and Caixabank (CABK.MC) would likely become the main investors.

      Investors will receive capital or government bonds in exchange for property they put into the vehicle, which could take up to 15 years to sell it all off.

      The steep discounts are in line with price falls foreseen in the worst-case scenario of an independent stress test of Spain’s financial system whose results were published in September.

      The audit showed Spanish banks needed around 60 billion euros in fresh capital to survive a serious economic downturn but the Bank of Spain said on Monday the transfer of assets into the bad bank would lower this sum by up to 6 billion euros.

      Because banks’ bondholders will also take a haircut on their investments and some lenders hope to raise money by themselves, the government expects to tap only around 40 billion euros of European funds.

      The property crash left banks with 184 billions euros of bad debt from real estate developers. The situation is now weighing on small businesses and other sectors.

      The bad bank, which is due to be up and running by the end of November, will have a maximum volume of 90 billion euros. It will initially receive assets from state-rescued banks worth 45 billion euros but is expected to manage assets worth 60 billion euros over time, Restoy also said.

      Four lenders are currently nationalized in Spain – Banco de Valencia (BVA.MC), Bankia (BKIA.MC), Catalunya Caixa and NovaGalicia Banco. Bankia alone will contribute as much as 24.8 billion euros of the assets.

      Other lenders, which will require injection of public cash in the next few weeks, will also transfer assets.

    • #113201

      Could put a lot of estate agents out of business too…shame 8)

    • #113202

      @katy wrote:

      Could put a lot of estate agents out of business too…shame 8)

      Some will do very well out of the Banco Malo, some will get crushed.

      What’s for sure is that this will be the biggest Spanish property company ever.

    • #113205

      So for those of us wanting to sell it basically means we have to wait more than 15 years….. or win the lottery?

    • #113207

      I hope normal people are allowed to be able to buy from this porfolio too and just not investment banks and the likes.

    • #113210

      The bad bank will have a return on equity of 14 percent to 15 percent in a conservative scenario, Rajoy added.

      Prey how does the prime minister believe that statement is possible? It beggars belief. It has the sound of a seedy fund manager trying to persuade you to part with your cash just before he fly’s out to Bolivia. These people live on another planet

      Or does he mean over 15 years? How can he predict with any certainty how this new entity will perform given the state of the property market and economy? The truth is he cannot and it’s simply whistling in the dark.

    • #113212

      Interesting piece as you say mg, this line

      Real estate consultants predict that almost two-thirds of assets that the government’s newly-created bad bank is due to take over from commercial banks will fail to attract investors, at least in the short term and possibly ever

      made me think. I hadn’t considered that the properties would never sell, but I guess its a real possibility.

    • #113213

      It’s really logical what they are doing but it doesn’t make sense to the normal way of thinking.

      The banks will without preassure keep their assets valued at inflated prices since it means they can loan out more money and that’s how they make a living “intrest”. Without the tax payers money they are doomed. The banks are trying to get the tax payers from all over europe to pay for this shortage that will arrive when these assets are devalued since without it the market will not give them cheap money. No one should give them this money since they should just go bankrupt. This is just prolonging and rewarding this bad behaviour and in the end the normal Jose is going to suffer more and also the Joes all over euorope.

      Making this bad bank is just the same since it will in fact reward them for their bad behaviour.

    • #113214

      Bad Bank implementation plan

    • #113221

      As always the devils in the detail. How they are going to convince private investors to invest billions in an already failed market is very difficult to see. Investors hate putting money into failure. The SAREB represents a financial disaster writ large.

      Most institutional investors seek long returns within 5 – 7 years. That is never going to happen here. The question then is; if private capital cannot be found in sufficient portion who or what is going to stomp up the money?

    • #113223

      It’s going to end up as a bailout by the tax payers.

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