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Spanish Economy Minister Luis de Guindos expects foreign investors and real-estate funds to help offload property assets from banks’ balance sheets and ruled out using public funds to shore up the industry.
“A third-party partner is going to enter into this asset management company if the valuation is the correct one,” said Guindos, 52, in an interview in Madrid late yesterday. The government “will set the general rules to do that but without any kind of subsidy. We are not going to put in any money.”
Less than three months after tightening rules to force lenders to recognize deeper real-estate losses, Spain is seeking new ways to convince the bond market that bank losses won’t overburden public finances. De Guindos said that any third-party investors in the new pooled property entities won’t need the reassurance of public money because the assets they will contain are becoming more realistically priced.
“The key element is going to be transparency and valuation,” said the minister, who used to run the Iberian unit of Lehman Brothers Holdings Inc. When asked whether the plan would create additional losses for banks, he said assets are already priced at market value.
Spain will draft rules in the coming months to allow banks to move real-estate holdings into asset-management companies run with third-party investors, de Guindos said. The mechanism, which will be voluntary, affects assets for which provisions have already been made.
Spain is in the midst of the third effort to clean up its banking industry since the bubble burst in 2008. In February, the government increased the ratio of provisions to be set aside for land to 80 percent, while raising the ratio on unfinished developments to 65 percent and to 35 percent for other troubled assets including finished houses. The new provisioning rules cover about 170 billion euros ($224 billion) of assets.
“We think these valuations are much closer to the valuations of the market place,” de Guindos said. He declined to specify who will value the assets, saying only that whoever it is mustn’t have “conflicts of interest.”
Spanish 10-year bond yields rose above 6 percent this week amid concern that lenders’ bad loans risk swamping national finances just as the government tries to rein in the euro region’s third-largest budget deficit. Highlighting Spain’s challenges, Standard & Poor’s late yesterday cut its rating on the country by two levels to BBB+, citing concern that it will need to pour more money into its banks. The new rate is three steps above junk.
Spain’s deficit-cutting efforts may be undermined by the economy’s relapse into its second recession since 2009, which has pushed the unemployment rate to 23.6 percent.
At the same time, de Guindos said he expects the economy to return to growth in 2013 and stressed that Spain is starting to recover some of the competitiveness lost over the first decade of euro membership.
Giving his first forecasts for 2013, de Guindos said that the economy will show “small but positive growth,” after contracting 1.7 percent this year. The International Monetary Fund expects an expansion of 0.1 percent next year, an estimate Guindos said is “reasonable.”
The jobless rate will peak at between 24 percent and 25 percent and stabilize next year, he said.
As exports grow, the nation will next year post its first current-account surplus since 1986, eliminating a gap that amounted to about 10 percent of gross domestic product during the debt-fueled boom.
“Next year we will be in surplus, that is the adjustment of the Spanish economy,” de Guindos said. “There’s a very clear improvement in the competitiveness of the Spanish economy.”
De Guindos joined Prime Minister Mariano Rajoy’s government in December after the pro-business People’s Party won the biggest majority any Spanish party has secured since 1982. He is set to propose a new head of the Bank of Spain as Governor Miguel Angel Fernandez Ordonez, appointed by the former Socialist government, comes to the end of his six-year term.
“It’s going to have a very technical profile: it’s going to be a professional, a person with a reputation in the international and domestic arena,” he said, declining to give names and saying it wouldn’t be a banker. “I have someone in mind.”
To contact the reporters on this story: Emma Ross-Thomas in Madrid at firstname.lastname@example.org Angeline Benoit in Madrid at email@example.com
To contact the editor responsible for this story: John Fraher in Madrid at firstname.lastname@example.org