Spain forced to establish Asset Management Company as part of bailout

The Memorandum of Understanding (MoU) under which Spainis to receive up to €100bn of funding from the the EuroZone’s bailout fund, has been published here. Amongst the conditions for providing the loans, there is a requirement for Spain to set up what looks like the equivalent of our own NAMA. It is merely referred to as an “Asset Management  Company” or “AMC” in the MoU – no doubt a catchy name for it will be decided upon later.

What will surprise many here, is the speed with which the AMC is supposed to be up and running, and to have acquired loans from the Spanish banks. Remember in our own case, NAMA was conceived at the start of 2009, the legislation giving effect to it was passed into law in November 2009, the first tranche was acquired in March 2010 and it was only in Q1, 2012 that NAMA acquired all the loans. And we are STILL awaiting European Commission approval of nearly 65% of NAMA’s valuations. It has been slow.

In Spain’s case, the AMC is supposed to be established in the next few months (2012!) and supposed to have acquired all the impaired loans in the most problematic Spanish banks by December (2012!). Spain’s economy is six times bigger than Ireland’s and although there is dispute over the level of property loan distress in Spanish banks, every seems agreed that there is at least €50-100bn of problem loans. It’s difficult to see how Spain can possibly deliver on the MoU in the timeframe stipulated. But regardless, the MoU states “the European Commission, the ECB and the IMF, will prepare a comprehensive blueprint and legislative framework for the establishment and functioning of this asset separation scheme by end-August 2012. The Spanish authorities will adopt the necessary legislation in the autumn with a view to assuring that the AMC will be fully operational by November 2012.”

In Spain’s case, they are categorising the banks into three categories according to how much difficulty they’re in. The “Group 1” banks are in most difficulty and would be akin to our Anglo, AIB, INBS. The “Group 2” banks are in less difficulty and might equate to our EBS and PTSB. And finally  they have a “Group 3” which might (just about!) equate to our Bank of Ireland. The Group 3 banks have a year to decide how they want to deal with their problem loans, and if they can demonstrate they are not so problematic, they may be allowed keep the loans rather than transfer them to the AMC.

You will be amused to hear that Spain’s AMC will adopt the Long Term Economic Value concept that caused such uproar here, though in Spain they’re calling it the Real Long Term Economic Value or “REV”. In addition, the banks will get an equity share in the AMC, so if there is any upside if the property market in Spain recovers faster than the AMC runs up costs, the banks will get their share.

It is interesting that the IMF will have oversight of the bailout even though it appears that it will be the EFSF (and the ESM when it is established) that will fund the bailout. The IMF has extensive global experience of AMCs.

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