This content is from: Local Insights

Spanish Bad Bank

Jaime de la Torre Viscasillas
Law 9/2012 on the restructuring and resolution of credit entities was approved on November 14 2012. The law was approved based on Royal Decree-Law 24/2012, on the restructuring and resolution of credit entities, which implemented commitments of the Spanish government assumed in its Memorandum of Understanding (MOU) agreed with the international authorities on July 20 2011. The MOU established, among others, that real estate-related assets of banks that require state aid must be transferred to an asset management company.

For this purpose, in December 2012, an asset management company named Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria (AMC or Sareb) was incorporated. The AMC, through the Fund for Orderly Bank Restructuring (FROB), had a public participation lower than 50%. The purpose of this company is the tenancy, management, acquisition and transfer of so-called troubled assets. It is also authorised to issue obligations or other debt instruments (with no limits on the amounts).

In December 2012, the banks classified in Group 1 (BFA-Bankia, Catalunya Bank, Banco Gallego, NCG Banco and Banco de Valencia) transferred their troubled assets to the AMC for approximately €36 billion ($48.2 billion). The FROB determined the type of assets that had to be transferred, according to Law 9/2012.

Once the Group 2 banks (which will require recapitalisation with state aid) have been determined and their restructuring plans have been approved, these entities will have to transfer the same categories of assets as transferred by Group 1 entities. This group will include Banco Mare Nostrum, Banco Grupo Caja 3, Liberbank, Banco de Caja España de Inversiones and Salamanca y Soria. The transfer of their troubled assets was scheduled to take place before the end of February and the amount to be transferred is expected to be around €14 billion. The total amount of assets to be transferred cannot exceed €90 billion.

Law 9/2012 also contemplates the transfer of all or part of the AMC's assets to a new type of fund called Fondos de Activos Bancarios (FABs), which are regulated by Royal Decree 1559/2012 of November 15, further developing Law 9/2012. Sareb has to promote the FABs. The management of the FAB has been reserved exclusively for asset management securitisations companies (Sociedades Gestoras de Fondos de Titulización). FABs can only be incorporated with assets that are transferred from Sareb. The incorporation of a FAB is a regulated activity, supervised by the Spanish Stock Exchange Commission (Comisión Nacional del Mercado de Valores).

Sareb's main objective is to manage and divest the portfolio of assets that it has received, maximising their recovery over a maximum period of 15 years. By doing so, the intention is that this will reduce any uncertainty over the viability of Group 1 and Group 2 banks that have requested public support, so they can concentrate on their core business.

Jaime de la Torre Viscasillas

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