MADRID: Spain's so-called "bad bank" is planning to take over soured property assets from struggling lenders at a modest additional discount to book value in order to protect struggling banks from further losses, three senior banking sources told a news agency.
But if the pricing is too generous for lenders, Spain may struggle to find foreign investors to participate in the scheme and it could end up costing the state more money, they warned.
Spain, the latest centre of the euro zone debt crisis, is setting up the "bad bank" as a condition of receiving up to 100 billion euros in European money for its ailing financial system.
The Spanish government is now in talks with euro zone peers and the European Central Bank over a bond-buying programme which would bring down its borrowing costs and give the country breathing room to reform its economy and its banks.
Three senior banking sources told Reuters on Monday that assets would be moved into the "bad bank" at a discount of 45 to 50 per cent from their original book value before a decade-long property bubble burst in 2007.
The figure is obtained by applying an additional discount of 5 to 10 per cent over average writedowns of around 40 per cent that the government has already forced banks to take on real estate assets, the sources said. Pricing is key.
If the discount is too high it could force fragile lenders - such as the four nationalised banks that will provide the bulk of the property assets going to the bad bank - to book further losses.
If it is too low it could make the scheme unattractive for investors and force the state to use more taxpayer money to take the property off of banks' books.
"As an average we could see further writedowns of 10 per cent," said one of the sources - a manager at a Spanish bank.
A second source said the additional discount would be equivalent to a capital buffer lenders were asked to set aside earlier this year but which has now been made irrelevant by new, higher capital requirements.
By assuring that the new writedowns would be compensated by the capital buffer, Spanish authorities would protect banks from booking new losses.
indiatimes.com
But if the pricing is too generous for lenders, Spain may struggle to find foreign investors to participate in the scheme and it could end up costing the state more money, they warned.
Spain, the latest centre of the euro zone debt crisis, is setting up the "bad bank" as a condition of receiving up to 100 billion euros in European money for its ailing financial system.
The Spanish government is now in talks with euro zone peers and the European Central Bank over a bond-buying programme which would bring down its borrowing costs and give the country breathing room to reform its economy and its banks.
Three senior banking sources told Reuters on Monday that assets would be moved into the "bad bank" at a discount of 45 to 50 per cent from their original book value before a decade-long property bubble burst in 2007.
The figure is obtained by applying an additional discount of 5 to 10 per cent over average writedowns of around 40 per cent that the government has already forced banks to take on real estate assets, the sources said. Pricing is key.
If the discount is too high it could force fragile lenders - such as the four nationalised banks that will provide the bulk of the property assets going to the bad bank - to book further losses.
If it is too low it could make the scheme unattractive for investors and force the state to use more taxpayer money to take the property off of banks' books.
"As an average we could see further writedowns of 10 per cent," said one of the sources - a manager at a Spanish bank.
A second source said the additional discount would be equivalent to a capital buffer lenders were asked to set aside earlier this year but which has now been made irrelevant by new, higher capital requirements.
By assuring that the new writedowns would be compensated by the capital buffer, Spanish authorities would protect banks from booking new losses.
indiatimes.com
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