Spain announced yesterday that their “bad bank” will buy the billions of euro’s worth of toxic loans and property assets from their domestic lenders in a similar move as to what Ireland did a few years back in creating NAMA.
Another example of making private debts public here and SAREB is thought to begin operations on Dec 1st. It is taking on approx EU60bln of toxic debt onto its balance sheet and thought to be applying about a 63% “discount” to these assets.
In simple terms this provides a mark for property assets as the government is willing to purchase the debt for 63% discount. It also frees up the banks balance sheet and probably makes it more likely that Rajoy and co will request a bailout or a credit line as these banks and the governments own balance sheet will need recapitalising.
The manager of this fund ( Restoy not Rajoy) has said that the 63% discount is enough to tempt purchasers and not too much to kill the banks he is taking them from. I think if he looks at NAMA and the processes they followed it will not be as easy as he may think to offload these assets but by putting theses troubled assets on the government balance sheet you are buying time. Investors will swoop at some point but for a good portion of these troubled assets but it wont be for the same price the government paid.
What does this mean for the markets? Probably slight relief for two reasons as it takes some pressure away from Spanish banks and also increases the likelihood that Rajoy will end his games of brinkmanship and go looking for a bailout or a credit line ….whatever he wants to call it. So would expect the euro to hold its slight gains here on the open.