UPDATE 1-Spain backs Catalunya Banc mortgage sale with state cash

Thu Jul 17, 2014 5:45am EDT

(Adds details on Spanish state's funding for the deal)

MADRID, July 17 (Reuters) - Blackstone has bought a big mortgage portfolio from Spain's nationalised Catalunya Banc for 3.615 billion euros ($5 billion), in a deal backed by fresh state funds as the government prepares to sell the bank.

The package of mostly problem home loans, worth 6.4 billion euros at face value, is the biggest of its type ever sold in Europe, according to Spain's FROB, the agency which handles the state's holdings in rescued banks.

The agency is expected to pick a buyer for Catalunya Banc itself by the end of this week, now that the lender has been slimmed down via the sale of the loans to the U.S. private equity firm.

Spain had to ask Europe for 41.3 billion euros in 2012 to shore up banks like Catalunya Banc that were unable to cope with a property market slump.

It has already failed twice to sell Barcelona-based Catalunya Banc through auctions, even after handing it 12 billion euros to rebuild its capital.

Potential buyers - including top players in Spain such as Santander and BBVA - had wanted more state aid or guarantees to shield them from the lender's soured loans.

The government has ended up giving in to these demands for more cash, though the funds will not go directly to Catalunya Banc as capital, or to buyers.

The FROB said on Thursday it would back the portfolio sale with 572 million euros, effectively buying part of it, to make up for a shortfall between the price Blackstone is paying and the value of the loans on the bank's books.

Catalunya Banc said it had 2.2 billion euros in provisions against losses on the 6.4 billion euros in mortgages. It said the remaining 4.2 billion euros will be shifted into a special purpose vehicle, which will issue bonds to Blackstone and the FROB, confirming an earlier Reuters report.

Spain could get some money back through this formula if the mortgages perform well.

About 43 percent of the mortgages are non-performing, meaning borrowers have missed payments for over three months, sources close to the deal have previously said. Another 17 percent are in danger of falling into that category.

Catalunya Banc said its core capital ratio would reach 14.9 percent, well above the minimums demanded by regulators, after the sale.

($1 = 0.7394 Euros) (Reporting By Sonya Dowsett and Sarah White; Editing by Inmaculada Sanz and Jane Merriman)