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Santander plans to invest in Spain's bad bank

Source: Reuters - Sun 18th Nov 2012
Santander plans to invest in Spain's bad bank

Spain's Santander plans to invest in the country's so-called bad bank in a sign that healthy domestic lenders are willing to support the entity created to clean up the aftermath of a 2008 property crash.

"The bank plans on investing in the bad bank," a spokesman for Santander, Spain's biggest bank, told Reuters on Saturday.

Spain has set up the bad bank to siphon off toxic real estate assets from bank balance sheets that date from the property crash. The bad bank's creation is a condition of receiving up to €100 billion of aid in a European bail-out of the country's financial sector.

Spain's 2nd biggest bank, BBV, is considering investing in the vehicle, but has yet to make a decision, a BBVA spokesman told Reuters on Saturday.

Sabadell is also considering investing but has not yet made a decision, a Sabadell spokesman said.

The bad bank's managers are currently in talks with BBVA, Sabadell and Barcelona-based Caixabank about them investing in the vehicle, a banking source said. Caixabank was not immediately available for comment.

An Economy Ministry source said on Friday the bad bank could go ahead just with backing from domestic investors but foreign investors would give it credibility.

The bad bank will initially have equity of €3.9 billion. But the government needs private investors to stump up €2.2 billion, or 55% of this, in December, the Economy Ministry source said on Friday.

Private sector support is key because the government wants to keep its stake in the bad bank below 50% to reduce the burden on state finances.

The bad bank, known as SAREB, will initially receive assets - such as soured loans to housebuilders and foreclosed property - from 4 state-rescued banks, including Bankia, worth €45 billion. It will have a maximum asset value of €90 billion.

The equity in the bad bank could rise to €5 billion after including assets from a further group of banks, aside from those taken from the state-rescued banks, the source said.

The government hopes eventually to capture €500 million of investment from foreign investors, or 10% of the final equity tranche.

The rest of the bad bank will be financed by senior state-backed bonds.

Government sources said on Friday that Spain's bank restructuring fund, the FROB, could use part of the European aid to invest in the bad bank, and as such, would not need to tap markets.