Spanish 'bad bank' to pay big discount on soured assets

Spain's new 'bad bank' will pay steep discounts for toxic loans and assets weighing on the stricken financial system, the central bank said Monday. The bad bank, called Sareb, aims to take on problem assets crushing Spanish banks since a property market crash in 2008.
But commercial banks will have to take a sharp haircut, or loss, on their misguided investments. Sareb will pay a discount of an average 45.6 percent to take on dodgy loans, and as much as 67.6 percent for loans without collateral, the Bank of Spain said in a statement.
It will pay an average discount of 63.1 percent for foreclosed assets, and one of up to 79.5 percent for foreclosed land, the bank said. Spain cried out in June for a eurozone rescue line of up to 100 billion euros ($129 billion), though it plans to use only about 40 billion euros of the available credit.
The creation of a bad bank was a key ingredient in the conditions imposed by Spain's eurozone partners when they agreed to the loan. "The creation of Sareb will substantially reduce any uncertainty over the viability of entities that need state aid, allowing them to concentrate on their main business," the Bank of Spain said in a statement.
The bad bank aims to sell the discounted assets to investors, freeing the commercial banks to release credit to the economy, in which a year-long recession has left one in four workers unemployed. But to lure private investors, the bad assets must carry a low price tag. The transfer of property-related assets to Sareb would be made on the basis of "prudent valuations" to ensure the bad bank's viability over its 15-year lifespan, the Bank of Spain said. The design and launch of the bad bank is being managed by Spain's state-backed Fund for Orderly Bank Restructuring.
Spanish banks that have been nationalised, including Bankia, would transfer 45 billion euros in toxic assets to Sareb in December this year, the central bank said. The total volume of bad assets in Sareb would swell as other troubled Spanish banks also transferred their problem loans and real estate to the bad bank, it said. The ceiling for bad assets to be held in Sareb has been set in law at 90 billion euros.