Spain is set to announce today its plan to shepherd struggling banks into mergers and make the industry set aside €50 billion ($66 billion) for real- estate assets left over from the bubble that burst in 2008.
The government will issue debt and inject the funds into banks via contingent convertible bonds, or CoCos, which convert into equity if capital ratios fall below a certain level, a person familiar with the process said yesterday. It will only support banks that merge and those lenders will also have more time to apply new provisioning rules, the person said.
Economy Minister Luis de Guindos speaks to reporters in Madrid today and the plan is due to be approved by the Cabinet tomorrow. The ministry gave no more details in an e-mailed statement
Prime Minister Mariano Rajoy, in power since December, has pledged a “true restructuring” of the industry at no cost to the taxpayer, four years after the decade-long property boom collapsed. Lenders have about €176 billion of what the Bank of Spain terms “troubled” assets linked to real estate on their books, including land and unfinished apartments, and have provisioned about a third of that.
“They don’t want it to cost the taxpayer anything, they don’t want to use EU bailout funds and they need it to be credible for the market, and those three conditions are apparently incompatible”, Fernando Fernandez, a professor at IE business school in Madrid and a former International Monetary Fund economist, said in a telephone interview.
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