Bloomberg News

Spain’s Montoro Says ’Bad Bank’ Would Weigh on Taxpayers

December 12, 2011

(Updates with comment from PP economy spokesman starting in second paragraph.)

Dec. 12 (Bloomberg) -- Cristobal Montoro, the economy spokesman for Spain’s People’s Party that won a national election last month, said “intermediate solutions” exist to deal with the impaired assets held by Spanish banks.

“A ‘bad bank’ means taxpayers will pay for deteriorated assets and we shouldn’t do that,” Montoro said during an interview today with radio station Cadena Cope. “There are intermediate solutions, which have been implemented in other countries,” Montoro said.

The PP, which won a landslide victory on Nov. 20 and is due to take over from the ruling Socialists next week, has pledged a “cleanup and restructuring” of the country’s banking system to help restore the supply of credit in an economy where lending is shrinking at its fastest pace on record. Spanish banks, burdened with 176 billion euros ($234 billion) of what the Bank of Spain terms “troubled” assets linked to real estate, are fighting to preserve profits as lending slumps and their cost of financing surges.

The new government will decide early next year whether to create a bad bank to buy real-estate assets from lenders to remove toxic assets from their balance sheets, a PP official who declined to be named because the deliberations aren’t public said on Dec. 8. Real-estate assets need to be valued at their true price and the process will affect some banks and not others, the official said.

‘Share Responsibility’

Bank of Spain Governor Miguel Angel Fernandez Ordonez said on Dec. 1 all options for bolstering banks should be considered, including varieties of so-called bad banks.

“Of course, the state should share a part of the responsibility,” Montoro said. “In Spain’s case, these assets are houses and land and this is positive because it means facilitating access to housing for many Spaniards and other Europeans as well.”

“We need to clean up the banking sector and we need to do so using these assets which are in banks’ balances and which aren’t finding takers on the market at their current prices,” he said.

Prime Minister-elect Mariano Rajoy has asked for at least two papers from academics on how to create a bad bank, two people with knowledge of the matter said on Nov. 25. Both proposals outlined mechanisms for a state-backed agency to buy soured assets such as real estate from banks at a discount, said the people.

According to one of the proposals, Spain needs external financing of about 100 billion euros to absorb the cost of transferring assets to the bad bank and should seek it from the European Financial Stability Facility or the International Monetary Fund, one of the people said. Both options call for valuations of real estate to be made by independent appraisers, the people said.

--Editors: Andrew Atkinson, Alan Crawford

To contact the reporter on this story: Angeline Benoit in Madrid at abenoit4@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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