* New entity will house billions in soured property assets
* Economy Minister to meet potential investors in London
* Signals "conservative" pricing of assets to be transferred
* Private investors to own 55 pct of 'bad bank'
* Healthy banks can participate in equity
By Jesús Aguado and Sonya Dowsett
MADRID, Oct 3 Spain's Economy Minister will meet
investors in London on Thursday in the hope of tempting them to
buy into a 'bad bank' that will house billions of euros of the
country's soured real estate assets.
Madrid hopes the newly formed asset management company will
help unblock the credit flows to businesses and families that
have been progressively choked off as the country's economic
crisis has worsened.
Its creation is also a condition of Spain receiving up to
100 billion euros ($129 billion) in European aid to patch up its
creaking banking system, overexposed to a housing boom that
crashed in 2008.
Spain expects private investment to finance more than half
the heavily written-down assets - including foreclosed property
and bad loans - that lenders will transfer into the entity,
which is expected to be in operation by early December.
The state wants to limit its ownership to under 50 percent,
to avoid an impact on public debt. The government expects
private investors to own at least 55 percent of the 'bad bank',
Economy Minister Luis de Guindos said in a speech to parliament.
One source said De Guindos would hold one on one meetings
rather than present a broad roadshow. The attendees were said to
be major fixed income funds.
The assets to be transferred would be priced "very
conservatively", and details would be given in coming days, he
Spain's banks will need almost 60 billion euros in extra
capital to ride out an extreme economic downturn, an independent
report concluded on Friday.
They will transfer foreclosed property and bad loans to
housing developers to the bad bank and receive state-backed
bonds in return which can be used as collateral with the
European Central Bank to get cash.
Sound loans to real estate developers might also be parked
there, de Guindos said.
The entity would be financed mostly through debt, with a 10
percent equity component subscribed by private investors and the
The transfers would take place in the first quarter of next
year, and the pricing of the assets should be seen in the
context of the entity's 15-year lifespan, the minister added.
TREADING A FINE LINE
Pricing is key as it must tread a delicate balance between
being low enough to attract investors and high enough not to
force further losses on fragile lenders.
"The bad bank will buy assets at very conservative prices
and it will stimulate the Spanish housing market," de Guindos
said. "It will bring housing on the market at reduced prices."
Spain has already forced banks to write off 137 billion
euros in bad real estate investments through two laws this year,
giving lenders an average of 40 percent coverage against their
But banking sources expect a further 5 to 10 percent to be
shaved off the value of assets before they are transferred to
the entity in order to attract investors.
The bad bank will be split up according to asset type in
order to attract different investors, de Guindos said.
"A finished home is not the same as a building plot, a house
in an urban area is not the same as one on the Spanish coast,"
de Guindos said.
Spain's healthy listed banks can participate in the equity
component of the bad bank, de Guindos said. Santander
has not said whether it wants to participate or not. BBVA
said it was considering transferring assets as well as
taking a stake but had not made a decision on either issue.