Bulk of bad bank should be in private hands, says government

Economy Minister Luis de Guindos on Wednesday said the government wants the bad bank being set up to absorb the toxic real estate assets of the country’s lenders to be majority owned by the private sector.

Speaking in Congress, the minister suggested that private-sector investors should own 55 percent of the bad bank, which is due to be up and running in December.

He said limits in the value of the assets transferred by the banks would need to be imposed in order not to over-burden the bad bank. He suggested that the minimum value for property should be 100,000 euros and 250,000 euros for loans.

The bad bank will be funded with subordinated debt, the majority of which should also be in the hands of private sectors, the minister said. It is projected that it should issue capital equivalent to about 10 percent of the value of the assets on its books, with debt making up the remaining 90 percent of its funds. This debt will be used to tap liquidity from the European Central Bank.

De Guindos said the assets would be transferred at their “real economic value,” adding the government was in talks with the ECB, the IMF and the European Commission to establish the appraisal criteria to be used.

He said the bad bank would put housing on the market at prices below those now prevailing, which would “dynamize” the market. The bad bank expects to take about 15 years to sell off all the assets it acquires.

Europe has granted Spain a low interest-rate loan of up to 100 billion euros to recapitalize the banking sector.