Santander to back Spanish ‘bad bank’

Santander plans to invest in Spain’s so-called "bad bank" in a sign that healthy domestic lenders are willing to support the entity created to clean up the aftermath of a 2008 property crash.

"The bank plans on investing in the bad bank," said a spokesman for Santander, Spain’s biggest bank.

Spain set up the bad bank to siphon off toxic real estate assets from bank balance sheets that date from the property crash. The bad bank’s creation is a condition of receiving up to €100bn of aid in a European bailout of the country’s financial sector.

Spain’s second biggest bank, BBVA, is also considering investing in the vehicle, but has yet to make a decision, said a BBVA spokesman.

Sabadell is also considering investing but has not yet made a decision.

The bad bank’s managers are currently in talks with BBVA, Sabadell, and Barcelona-based Caixabank about them investing in the vehicle, a banking source said.

An economy ministry source said on Friday that the bad bank could go ahead just with backing from domestic investors, but foreign investors would give it credibility.

The bad bank will initially have equity of €3.9bn, but the Government needs private investors to stump up €2.2bn, or 55% of the initial equity, in December. Private sector support is key because the government wants to keep its stake in the bad bank below 50% to reduce the burden on state finances.

The bad bank, known as Sareb, will initially receive assets — such as soured loans to housebuilders and foreclosed property — from four state-rescued banks, including Bankia, worth €45bn. It will have a maximum asset value of €90bn.

The equity in the bad bank could rise to €5bn after including assets from a further group of banks, aside from those taken from the State-rescued banks. Spain’s government hopes to eventually capture €500m of investment from foreign investors, or 10%, of the final equity tranche.