Bad bank is
part of ambitious new banking law Spain’s conservative government promises will
save ailing finance sector.
Spain will inject emergency capital into the country’s biggest ailing bank,
Bankia, as it puts into place reforms to allow loss-making banks to receive
eurozone bailout money.
The move came
after Bankia admitted losing more than €4bn (£3.168bn) in the first half year
and as the conservative government of prime minister Mariano Rajoy delayed a
decision on losses to be absorbed by small investors in bailed out banks.
The Fund for the
Orderly Bank Restructurin (Frob) said Bankia’s restructuring plan should be
ready by October, allowing eurozone rescue money to arrive in November. “While
the restructuring process is completed, the Frob intends to inject capital
shortly,” it said. This would be an advance on the eurozone money.
government passed an ambitious banking law on Friday pledging
once more that this would be the definitive shakeup for its finance sector that
needs up to a €100bn (£80bn) bailout.
brings reform of the finance system to its crowning point,” the deputy prime
minister, Soraya Saenz de Santamaría, said as the government presented its
third reform in six months.
so-called “bad bank” will swallow large amounts of the toxic real estate that
has brought down several Spanish banks and threatens several more. The property
is left over from the housing construction bubble that burst in 2008, just as
the credit crunch happened, and which lies at the root of Spain’s double-dip
recession and 25% unemployment.
bad bank will receive building plots, unfinished developments and possibly tens
of thousands of unsold homes from developers who went bust or are struggling to
repay loans. It will be expected to sell this stock at a profit over the next
10 to 15 years. “It will be viable and will not post losses,” the finance
minister, Luis de Guindos, said.
creation of the bad bank – which the government hoped would be mostly privately
financed – was one of the demands made by the eurozone countries providing the
€100bn loan facility to Spain’s banks.
law also creates a process for breaking up and winding down banks, while
ensuring that small savers who invested widely in risky preference shares in
banks would bear some of the losses when they are bailed out.
decision to use the Frob to inject capital into Bankia rather than an emergency
facility set aside by the eurozone rescue fund, came as the finance ministry
failed to give full details of what losses would be born by shareholders and
small investors who bought hybrid preference shares in banks that receive
eurozone money. Those losses may now not be made public until after regional
elections in Galicia and the Basque country in October.
Guindos did not say what price the bad bank would pay for toxic assets, but
promised a transparent system. This should be in place by December.
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