Spain halts sale of Catalunya Banc

 

Spain on Monday halted for the second time in less than a year the auction of nationalised lender Catalunya Banc after offers fell short of the government's expectations.

The suspension of the sale is a blow to Spain's hopes of progressing quickly with the clean-up of its financial sector, laid low by a five-year-old property market crash, although it has until the end of 2016 to get the bank off its hands under a deal with its European partners.

Only 2 banks, top player Banco Santander and Banco Popular, presented non-binding offers for the rescued Catalan lender, two sources with knowledge of the process said.

A 3rd, Banco Sabadell, registered its interest, but without formalising its offer, a further source said, while BBVA, which had said it was studying a bid, did not present an offer, according to one of the first two sources.

"Two entities, Santander and Popular, showed an interest, but it fell short of our objective of maximising the value for the taxpayer and we believe there may be better formulas," one of the sources said.

Spain's Economy Ministry and the 4 lenders mentioned in the process declined to comment.

The first round of the auction, which had been due to close at the end of last week, was extended until later on Monday, but it was still not enough to save the process.

Spain interrupted the bank's sale last year when it began negotiating a rescue of up to €100 billion from Europe for its ailing lenders. It began auctioning off the bank again in early 2013 and had hoped this sale would pave the way for more disposals of bailed out lenders, including NCG Banco, also known as NovaCaixaGalicia.

MINIMIZING THE COST

But several sources close to the process said one major sticking point was the government's refusal to include an asset protection scheme with the sale, which would shield prospective buyers from future losses at the expense of the state.

While previous disposals of state-rescued lenders included such a scheme, Catalunya Banc has been fully recapitalised and moved its rotten real estate assets to a so-called 'bad bank' set up by the government, leading the state to try to auction the lender without protection.

The lender also has one of the biggest market shares in the relatively wealthy region of Catalonia, adding to its attraction for healthy banks keen to expand in Spain.

A Spanish government source told Reuters last week that the FROB would not be rushed into selling the bank because it believed it now had good value and that it would rather call off the auction than sell it at a bad price.

In a statement released on Monday, the FROB - the restructuring fund through which the government owns the bank - said Catalunya Banc was now solid and solvent and that it had until the end of 2016 to sell it.

"The FROB therefore has enough time to look for the best options for Catalunya Banc in order to minimize the cost for the taxpayer," it added.