Popular, Caja Madrid struggle to sell loans-sources

By Elena Moya

LONDON, Aug 29 (Reuters) - Spain's Banco Popular (POP.MC) and Caja Madrid have had to delay and significantly reduce sales of non-performing loans (NPLs) due to lack of interest, sources familiar with the transactions told Reuters.

The financial institutions, under pressure to clean up their books because of the global credit crunch, need to cut prices if they want to spark investor interest, sources from private equity firms and distressed funds told Reuters.

PriceWaterhouseCoopers [PWC.UL], the accountancy firm advising Caja Madrid NPL sale, recently cut the size of the transaction to about 130 million euros ($191.6 million) from an initial amount estimated at 300 million euros, a person familiar with the transaction said.

"A relatively low proportion of mortgage loan portfolios on offer - perhaps 2 out of 10 - have resulted in successful sales," in Spain, said Robert Young, Associate Partner at Deloitte in London.

"The softening in the Spanish real estate market has come hard and fast, resulting in investors pricing their buy-decision in a falling market, while sellers are catching up on provisions and writedowns."

Spanish banks are also under pressure as the reversal of a real estate boom is pushing the domestic economy towards recession.

Caja Madrid and Banco Popular declined to comment.

DISCOUNTS

Private equity firms and distressed investors which have recently bought distressed assets in Spain -- including Lehman Brothers LEH.N, Apollo and Carval -- expect heavy discounts.

Investors want to replicate deals such as Lone Star's purchase of a $30.6 billion distressed portfolio from Merrill Lynch at 22 cents per dollar, or a previous sale of UBS (UBSN.VX) assets to fund manager BlackRock.

International investors also require further discounts in Spain as banks sometimes do not provide sufficient information, one of the sources said. Banks or savings banks have used old valuations in transactions, the source said.

Martinsa Fadesa (MFAD.MC), the real estate firm which filed for Spain's biggest insolvency ever in July, recently acknowledged the 10 billion-euro valuation of its assets was outdated.

"If you don't give information, you can't pretend to get your price," a private equity buyer of distressed assets told Reuters.

Investors also want further discounts as buyers of debt of a company that has already filed for insolvency do not have voting rights, another source said.

"They're not finding buyers because they're asking for unreal prices - and then if the company goes bust, you don't have any rights," a banking source said. "Banks will have frozen balance sheets for many years."

But Spanish financial institutions may feel increasing pressure to cut their asking prices as the economy deteriorates.

The number of bad loans held by Spanish banks jumped more than 10 percent in June, taking the rise to 164 percent over the past 12 months, the Bank of Spain warned earlier this month.

Fitch Ratings recently downgraded six sets of Spanish mortgage securities issued by Banco Santander (SAN.MC), highlighting "the high percentage of loans written off during recent periods," the credit ratings agency said.

"The substantial arrears within the transactions suggest the current pace of write-offs will continue, leading to further reserve fund draws in the coming quarters" Fitch said. (Editing by David Cowell)