Thursday, 13 December 2012

Spain's bad bank to sell to whom?

It's a clever wheeze. Spanish banks are sitting on a mountain of property loans for homes worth about half at open market value of the fictional asset values on the banks' books. So create a new Bad Bank and transfer all the toxic assets at partially inflated book values to it, leaving the original banks healthier but taking a reasonable hit. The Bad Bank can then sell the assets at OMV and take the balance of the hit on the loss. OK so far? But the Bad Bank will not just charge the losses to the Euro taxpayer. It is intended to be funded by private investment, producing a return of 14%-15% over 15 years. But as hardly anyone will invest by taking a straight share of equity, only 8% of the Bad Bank's capitalisation will be equity. The remaining 92% will be, er, debt guaranteed by the State (up to €55bn) and 'perpetual subordinated debt'. 

From today some 89,000 homes and 13m square metres of land will start to go on the market. These are just the high-value end of the scale, largely commercial developments. Bad loans of under €250,000 have still to be transferred. 

Just one question, Baldrick. Who's going to buy? And where are they going to borrow the money from?


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