Spain sounding out investment banks on crisis options
LONDON (Reuters) - Spain is sounding out investment banks including Credit Suisse (CSGN.VX), Goldman Sachs (GS.N) and UBS (UBSN.VX) as it seeks a credible fix for its banks roiled by a collapse in real estate prices and now threatening the creditworthiness of Spain itself, sources familiar with the matter said.
Spain has repeatedly said it will not ask for European Union or IMF money to solve the problem of its banks, hit by billions of euros in losses after the bursting of a decade-long property bubble in 2008. Instead, the central bank is consulting about setting up a holding company to value and sell off the real estate assets.
Bankers say institutions in the running to advise Spain include those with experience of setting up Ireland's National Asset Management Agency (NAMA) - a model which Spain could use - or in arranging Greece's debt restructuring earlier this year.
Lazard (LAZ.N), Blackstone (BX.N) and BNP Paribas (BNPP.PA) advised on restructuring Greece's debt. Goldman Sachs and Bank of America (BAC.N) were among the main advisers to Ireland.
Credit Suisse, UBS, Citigroup, JP Morgan, Rothschild ROT.UL, Nomura (8604.T) and Deutsche Bank (DBKGn.DE) have also participated in government work through the financial crisis, according to Thomson Reuters data.
"They are debating ideas and being encouraged by the International Monetary Fund to do so," said Pierre-Yves Bonnet, global head of financial institutions group at Societe Generale.
"But it is a very political decision as it means that they underestimated the necessary write-offs in the first place."
Spain's conservative government has told the country's banks to raise almost 54 billion euros (44 billion pounds) in capital this year.
Since June 2008, and without taking into account new measures set in motion by the Spanish government regarding construction and property development-related assets, provisions have already been increased by 112 billion euros, according to recent data by the Bank of Spain.
The state has injected about 18 billion euros into the system, has taken control of five banks and has forced lenders to recognise steep losses. It is now looking at what it calls a "liquidation structure" to take toxic assets off their books.
Some analysts expect property prices to fall another 20 or 30 percent. Many therefore believe existing provisions against bad real estate loans will not be enough, and some say Spain will eventually need a bailout like Greece, Portugal and Ireland.
A first step would be for real estate advisers to determine how much the government should provision for a bad bank.
Selecting a banking adviser to help create and launch a bad bank is a politically charged step that would come later in the process, bankers said.
Peter Hahn, who teaches finance at London's Cass Business School and is a former managing director at Citigroup, said investment banks could provide valuable input on a "market clearing" price.
"A real estate consultant's valuation is not worth anything unless you can find a buyer for those assets. That's where the investment banks come in," he said.
INDIVIDUAL MANDATES THE PREFERRED ROUTE
Privately some bankers said they would prefer not to get a role advising the government, because a one-off fee for the work would be potentially less lucrative than a couple of mandates to sell or buy Spain's regional savings banks, known as "cajas".
Potential advisers are also keen to avoid getting involved in conflicts of interest that could cost them business.
"We prefer transaction-specific deals rather than a sector-wide mandate because that can conflict you out of every buyside transaction," said a London-based banker, who covers the financial institutions sector.
The Bank of Spain has already sold four banks rescued by the state and has three more left to sell. It started marketing two of these - the small Banco de Valencia and Catalunya Caixa, a mid-sized Catalonian savings bank, on Thursday.
One banker said the mandates to sell the cajas were rotated among a panel of investment banks that had been pre-qualified for the appointments.
Nomura was selected to sell Banco de Valencia with guarantees on its 6 billion euro portfolio of troubled real-estate assets covering 80 percent of future losses over 10 years, bank sources who had seen the prospectus said previously.
Potential losses should be covered through the country's Deposit Guarantee Fund (DGF), financed by annual contributions from banks, which originally covered retail deposits but now also guarantees other assets.
Citigroup (C.N) won a similar role at Catalunya Caixa, which was taken over in September when it was valued at almost nothing. This sale is also expected to be financed by the DGF with a similar asset protection scheme on a soured real estate portfolio of almost 6 billion euros.
Madrid has played down the idea of creating a bad bank similar to NAMA, set up after Ireland suffered its property crash, but banking sources said consultants from Oliver Wyman and BlackRock were advising it on how to value the toxic assets.
Spanish government officials have held informal talks with at least four other international property advisers to learn more about NAMA's inner workings, separate sources said.
"This is being done discreetly over dinner or through approaches at trade shows," one source said. "We have had a lot more approaches of late."
Real estate advisers including CBRE (CBG.N), Savills (SVS.L), DTZ and Knight Frank have given advice on what many property industry sources see as a successful Irish model.
Supporters of that approach include Joe Valente, head of research and strategy for the European real estate group at JP Morgan (JPM.N).
Others including Jones Lang La Salle (JLL.N) were also likely to have held talks, the sources close to the sector said.
CBRE, Jones Lang LaSalle, Knight Frank and Savills declined to comment. DTZ was not immediately available for comment.
Lessons from the Irish model included how NAMA removed control from the banks to ensure the relationship with the borrower was free from outstanding problems; not holding on to too much real estate because the cost of capital is low; and the importance of drafting in outside expertise, the sources said.
(Additional reporting by Thomas Bill and Sarah White; Editing by Alexander Smith, David Stamp and Janet McBride)
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