Bloomberg News

Spain to Pay About 1.5% on Bank Bailout Loans, Guindos Says

July 23, 2012

Spain will pay about 1.5 percent on the European bailout loans for its banks, Economy Minister Luis de Guindos said, as he again rejected the need for a sovereign rescue in the face of surging government borrowing costs.

The rate will be variable, made up of a base rate plus commissions, and it “would be safe to say it will be around 1.5 percent,” de Guindos told lawmakers in Parliament in Madrid today. Spain’s FROB bank fund will earn more than 8 percent on contingent convertible securities issued by lenders, he said.

Spain asked for European funds to shore up its banks as the government’s access to debt markets narrowed and the cost of servicing its debts soared. The yield on 10-year Spanish bonds rose to a euro-era record of 7.57 percent today, pushing the gap between German and Spanish securities to 6.43 percentage points.

De Guindos said market tensions were due to “doubts about the euro project” that can’t be solved by one government alone. Asked if he continued to rule out Spain seeking a sovereign bailout, he said: “of course.” While the bailout agreement refers to other tools available to the European rescue facility, Spain has only asked for help with its banks, he said.

The government can’t act to limit speculative moves in bond yields as that’s up to “other institutions” in a monetary union, De Guindos said.

An asset management company, or bad bank, will be created to buy “problematic assets of aided banks,” according to the July 20 memorandum of understanding that will govern the 100 billion-euro ($121 billion) rescue plan. The bad bank, due to be operational by November, will buy mainly real-estate development loans and foreclosed assets, as well as “other assets if and when there are signs of strong deterioration.”

The bad bank can be financed by bonds that are eligible as collateral for funding from the European Central Bank, de Guindos said. Spanish banks selling assets to the bad bank may get cash or a stake in the vehicle or state-backed bonds issued by the bad bank as payment, he said.

To contact the reporter on this story: Emma Ross-Thomas in Madrid at erossthomas@bloomberg.net

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


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