Spain looks to a bad bank to clean up sector

City A.M. Reporter
THE SPANISH government will force banks to move all their real estate assets into a special holding company within weeks, in a bid to reassure investors the lenders won’t need a further rescue, it emerged yesterday.

The real estate holding entity should be up and running by the summer, but the final form and details are still being discussed by the banks and the state, a government source said. It is expected to dissolve after 10 years.

Spain’s ability to avoid an expensive state rescue for its fragile banking system – which was devastated by the 2008 crash of a decade-long building boom – is key to the country’s efforts to keep debt under control and avert a European bailout.

“This will enable us to separate clearly the banking business from the real estate one,” the source said.

“Now that most of provisions have been made against property losses, it should enable the banks to get cleaned up easily.”

The Spanish government in February forced the banks to write down massively the value of undeveloped land, unfinished developments and foreclosed properties. That was a third round of restructuring for the troubled sector.