The Spanish government is taking over another lender as its cleanup of the troubled financial sector gathers pace and healthier banks cough up funds to purge the system of toxic real estate assets.
The government said on Thursday it had secured the private investment it needed to get its "bad bank" going, with most of the capital coming from the country's top lenders, except for BBVA.
The asset management company, known by its Spanish acronym Sareb, will house rotten real estate loans and properties from Spain's most ailing lenders, including four nationalized banks that need €37-billion ($48.25-billion U.S.) in European aid.
At the same time, Spain's government is in the process of taking over more banks or taking minority stakes in small lenders, as many struggle to find the capital they need to cope with their real estate woes and an economic downturn.
Spain appealed to Europe this year for help for banks hit by the 2008 collapse of a long property boom, but the country remains in the eye of the euro zone debt storm and Prime Minister Mariano Rajoy is considering asking for a bailout for public finances as well.
The government is taking a stake of more than 50 per cent in small, unlisted lender Banco Mare Nostrum (BMN), a BMN spokesman said on Thursday. The bank was long seen as one of the next in line for help.
The operation is the eighth state takeover of a bank since Spain's financial crisis began in 2008.
BMN, which has total assets close to €70-billion, had originally wanted a capital boost with temporary state aid via convertible bonds, handing the government a minority stake.
"We don't know the exact amount yet but it will easily be more than 50 per cent and it will be a direct capital injection," the spokesman said.
Spain has came under pressure from Europe to draw a line under its banking turmoil quickly and decisively, and has dropped options such as state loans to lenders.
"There was a big battle between Europe and the Bank of Spain to decide what form the capital injections could take," a source with knowledge of the rescue negotiations said. "That's the price of the rescue – that the Bank of Spain and the Economy Ministry are no longer in charge."
Spain had already earmarked some €1.5-billion in extra capital needs for four small Spanish banks – BMN, CEISS, Caja 3 and Liberbank. An audit of the banking system in September showed they needed €6.2-billion, but Spain estimates that number will fall when they transfer assets to Sareb.
CEISS – otherwise known as Caja Espana-Caja Duero and which is in the process of merging with another lender, Unicaja – is also likely to need extra state aid on top of existing loans.
But it is still unclear whether the government will take a majority stake, a source familiar with the matter said.
Spain's biggest, healthier lenders are also participating in the cleanup.
The likes of Santander will be putting in most of the private capital needed by Sareb, the government said, adding that a first capital injection had already taken place.
The bad bank will have an initial capital base of €3.8-billion and will eventually reach €5-billion, of which 25 per cent is equity and the remainder subordinated debt, the economy ministry said.
About €44-billion of troubled property assets are due to be transferred to Sareb by year-end and a second capital injection, from yet more Spanish banks and insurers, will go ahead in the next few days, Spain's government added.
Spain needed private investors to provide at least half of that capital to reduce the burden on state finances. It had been hoping to attract foreign funds as equity investors too, but that is unlikely to happen until at least February or March next year, sources told Reuters last week.
Santander's initial investment in the bad bank will total €656-million and Caixabank's will be €472-million. Sabadell and Popular between themselves are putting in €492-million in start-up capital, and smaller Kutxabank is providing €100-million.
Some firms with international parent groups but big operations in Spain will also contribute token amounts. French insurer Axa's Spanish operation said it would provide €10-million while Deutsche Bank will put in €15-million.
Spain struggled to get some banks to contribute but others like Caixabank and Popular have said they will invest in the startup capital of the bad bank and put in more next year.