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Spanish State takes over eighth bank

13 December 2012

Spanish State takes over eighth bank

The Spanish government is taking over another lender as its clean-up of the troubled financial sector gathers pace and healthier banks cough up funds to purge the system of toxic real estate assets.

The government said today it had secured the private investment it needed to get its 'bad bank' going, with most of the capital coming from the country's top lenders, except for BBVA.

The asset management company, known by its Spanish acronym Sareb, will house rotten real estate loans and properties from Spain's most ailing lenders, including four nationalised banks that need 37 billion euros ($48.25 billion) in European aid.

At the same time, Spain's government is in the process of taking over more banks or taking minority stakes in small lenders, as many struggle to find the capital they need to cope with their real estate woes and an economic downturn.

Spain appealed to Europe this year for help for banks hit by the 2008 collapse of a long property boom, but the country remains in the eye of the euro zone debt storm and Prime Minister Mariano Rajoy is considering asking for a bailout for public finances as well.

The government is taking a stake of over 50 percent in small, unlisted lender Banco Mare Nostrum (BMN), a BMN spokesman said on Thursday. The bank was long seen as one of the next in line for help.

The operation is the eighth state take-over of a bank since Spain's financial crisis began in 2008.

BMN, which has total assets close to 70 billion euros, had originally wanted a capital boost with temporary state aid via convertible bonds, handing the government a minority stake.

"We don't know the exact amount yet but it will easily be more than 50 percent and it will be a direct capital injection," the spokesman said.

Spain has came under pressure from Europe to draw a line under its banking turmoil quickly and decisively, and has dropped options such as state loans to lenders.

"There was big battle between Europe and the Bank of Spain to decide what form the capital injections could take," a source with knowledge of the rescue negotiations said. "That's the price of the rescue -- that the Bank of Spain and the Economy Ministry are no longer in charge."

Spain had already earmarked some 1.5 billion euros in extra capital needs for four small Spanish banks -- BMN, CEISS, Caja 3 and Liberbank. An audit of the banking system in September showed they needed 6.2 billion euros, but Spain estimates that number will fall when they transfer assets to Sareb.

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