FINANCIAL REFORM

Bad bank sets ball rolling with initial capital increase

With exception of BBVA, main lenders take stakes in Sareb

The bad bank asset management corporation (Sareb) set up by the government to absorb the toxic assets of the banking sector comes into existence with initial capital of 827 million euros, Bank of Spain’s Orderly Bank Restructuring Fund (FROB) said Thursday.

It said the Sareb had carried out a capital increase to allow the country’s leading lenders — with the notable exception of BBVA — entry into its shareholder structure to the initial tune of 430 million euros.

Santander invested 164 million euros, Caixabank 118 million, Banco Sabadell 66 million, Banco Popular 57 million and Kutxabank 25 million. The FROB brings a further 397 million euros to the table.

The ministry said that before the end of this year shareholders will also subscribe to a further equity and subordinated debt issue that will increase the Sareb’s total shareholder funds to 3.8 billion euros, 74 percent of its estimated final capital of 5 billion euros, of which 25 percent will be in equity and the remaining 75 percent in subordinated debt.

New shareholders

Santander’s ultimate contribution to the Sareb in terms of equity and debt will be 820 million euros, affording it an interest of 20 percent. Caixabank will initially have a 14-percent stake with a total investment of 606 million euros, although this will eventually be diluted to 11 percent. Sabadell, Popular and Kutxa will have respective stakes of 8.0, 6.8 and 3.0 percent. Total funding from the banks will be 2.16 billion euros.

The shareholder structure of the Sareb would change if BBVA finally decides to take part. Because of its size, Spain’s second biggest lender would be expected to inject between 600 and 800 million euros in the Sareb’s capital.

The FROB said that other lenders and insurance companies will later also participate in the Sareb’s shareholder structure. “Practically, all of the main banks and insurance companies in Spain will be shareholders,” the FROB said.

The Sareb will eventually absorb some 59 billion euros in impaired assets, mostly related to the ailing real estate sector. Before the end of the month it will take on 44 billion euros in assets from the four banks that have needed to be nationalized: BFA-Bankia, Catalunya Banc. NovaGalicia and Banco de Valencia.

The bad bank will subsequently absorb the damaged assets of non-nationalized lenders next year, which will require a further capital increase to which current and new shareholders can subscribe.

The operation to clean up the balance sheets of banks in difficulties is being funded by a loan from the European Commission. In exchange for the assistance, Brussels will require the nationalized banks to reduce their balance sheets by up to 60 percent by 2017.

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