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Spanish banks' toxic asset transfer to be voluntary

05/03/2012 | 03:35pm US/Eastern

The transfer of Spanish banks' toxic real estate assets into holding companies to value and sell them off will be on a voluntary basis, the economy ministry said on Thursday.

Spain, to reassure investors the ailing lenders won't need another rescue, said last week the banks would park their problem assets into liquidation structures within weeks but sources had so far said the move would be compulsory.

"It will be done on a voluntary basis," Esther Barranco told Reuters, adding that the Bank of Spain would coordinate the different models developed by the banks.

Earlier on Thursday, Spain's Economy Minister Luis De Guindos said the government would regulate in the next days or weeks the way the banks remove their toxic property assets from their books.

"This is the idea, that the banks remove their real estate assets, with partial sales or through entities," De Guindos said at an event in Barcelona.

Spain's two main banks Banco Santander (>> Banco Santander, S.A.) and BBVA (>> Banco Bilbao Vizcaya Argentaria S.A.) have said they are opposed to setting up special structures to handle real estate assets.

Other smaller lenders, such as Sabadell (>> Banco de Sabadell SA) and Bankinter (>> Bankinter SA), also said they can manage their holdings without moving them into specific structures.

Spain's banks were hit by billions of euros of losses after a decade-long property bubble burst in 2008 and concern about them, and the country's overspending regional governments, have fanned fears of a new euro zone debt crisis.

The government has restructured the financial sector three times, injected some 18 billion euros into the system, taken over five banks and forced banks to recognize steep losses.

But investors are not convinced all the risks have been worked out of the system and Spain's borrowing costs are hovering at a costly 6 percent but still below a level deemed unsustainable.

DIFFERENT STRATEGIES

De Guindos also said some banks had already provisioned heavily potential losses and would be able to transfer their bad assets easily and quickly while others would need more time.

CaixaBank (>> CaixaBank SA) set aside 2.4 billion euros ($3.16 billion) or 100 percent of the capital it will need to comply with tough new standards set by the government.

Banesto (>> Banco Espanol de Credito SA) put aside close to half of the 1 billion euros it will need under the new rules, which require lenders to recognize losses of 80 percent on undeveloped lots, 65 percent on unfinished developments and 35 percent on finished homes.

Banco Santander and BBVA chose a different strategy to meet the new requirements when they reported earnings for the first quarter, saying they would focus on provisioning later in the year.

Bankia (>> Bankia SA), one of Spain's bigger banks and which lies at the heart of concerns over the banking system due to its large exposure to the country's property sector, is already half way to find the 5 billion euros it must provision this year against future losses related to property assets and loans.

Its Chairman Rodrigo Rato, however, said on Thursday that banks should provision quickly.

The Spanish government has repeatedly ruled out the possibility of injecting more money into the sector and insisted the banks should bear the burden of any unprovisioned losses.

The spokeswoman also said that only two conditions would initially be imposed on the lenders: that they would only have a minority share in the new entities and that these entities could not act as banks.

Spain is sounding out investment banks including Credit Suisse (>> Credit Suisse Group AG), Goldman Sachs (>> Goldman Sachs Group, Inc.) and UBS (>> UBS AG) as it seeks a credible fix for its banks roiled by a collapse in real estate prices and now threatening the creditworthiness of Spain itself.

($1 = 0.7603 euros)

(Additional reporting by Jesus Aguado; Editing by Fiona Ortiz and Jane Merriman)

By Julien Toyer

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