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Spain to decide on bad bank in coming months

Source: Reuters - Fri 9th Dec 2011

Spain's incoming centre-right government will make a decision on whether to create a bad bank during its first few months in power after valuing banks' real estate assets, a Peoples' Party (PP) source said late on Thursday.

"It's a possibility but a decision has not been made," the source said. "We'll take a decision in the first few months."

The PP, which will take the reins of power later this month after winning an election in November, is considering grouping together toxic real estate assets from a property crash at state level in order to improve banks' solvency.

Confusion still reigns over the scale of losses linked to Spain's decade-long property boom, which ended with a crash four years ago, with many banks skimping on detail about what lies on their balance sheets.

Any bad bank would have to be accompanied by a harsh repricing of real estate assets to their current market value, including unpaid loans to bankrupt property developers and unsold developments and brownfield sites littered around Spain.

Critics fear such a repricing would identify a huge capital hole, in the region of 100 billion euros, which the newly-formed government would have to cover by issuing debt or accessing European Union funds.

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