Four Spanish lenders set to pass properties to bad bank

Tue Feb 26, 2013 6:55pm EST
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MADRID (Reuters) - Four mid-sized Spanish banks are poised to transfer 14 billion euros ($18.30 billion) of soured property assets to a government-backed "bad bank", which on Tuesday issued bonds to give to the banks as payment and completed a capital hike.

The bad bank, known as Sareb, was launched at the end of 2012 as a condition of a 40-billion-euro European rescue of the country's ailing lenders.

It is designed to clean up Spain's banking system after a property crash five years ago, and has taken on tens of thousands of troubled loans to developers, plots of land and buildings in various stages of construction.

Sareb said it was issuing just over 14 billion euros of senior bonds - effectively government debt - which it will then give to the banks in exchange for their deeply-discounted assets.

The banks can use these as collateral to get funding from the European Central Bank.

Sareb also issued more subordinated debt, bought up by outside investors such as insurers Generali (GASI.MI: Quote) and Zurich ZURN.VX, taking its capital to 4.8 billion euros so it can cope with a fresh intake of assets.

Just over half of Sareb's capital is in the hands of private investors - mainly healthier Spanish banks that are not transferring their assets to Sareb - to reduce the burden on public finances.

Four of Spain's weakest banks, including Bankia (BKIA.MC: Quote), which took the biggest chunk of the European aid, already transferred 37 billion euros of assets to Sareb at the end of December.

Four more banks are now set to dump more assets in Sareb on February 28, taking the bad bank's assets to between 50 and 55 billion euros.   Continued...

A woman stands beside an ATM at a branch of Spanish lender Bankia in Madrid February 15, 2013. REUTERS/Sergio Perez