Spanish banks accomplish a feat of irony as they attempt to sell off real estate assets

Spanish banks accomplish a feat of irony as they attempt to sell off real estate assets

In 2008, Spanish banks took on a large amount of homeowners’ debt in exchange for assets, or homes. While this move helped avert a massive reduction on debt, it left Spanish banks with far more homes as assets instead of loans.

The move was made with the intention that the banks would eventually be able to sell off these real-estate assets as the housing market began to rebound. The only problem is that the rebound they were hoping for hasn’t happened. In fact, Spain’s housing market has steadily worsened since the recession.

Now, the banks have come under the pressure of the Bank of Spain, the country’s main regulator, to increase loan loss provisions against their property assets in the coming months and to start to make further mark downs on their real estate assets that are now worth about €59.7 billion (US $73.8 billion).

As many of the country’s banks scramble to unload their real estate assets, they are offering consumers deals that are suspiciously similar to the ones that plunged the global economy into recession two years ago.

Not only are the banks offering consumers 100-per-cent loans, but they’re also offering low initial mortgage rates for buyers or payment deferrals for up to three years.

Ironically, Spanish banks seem more than ready to use these tactics, which may only forestall their problems for a few years as they continue to acquire even more high-risk assets.

1 Comments
  • mortgage needs 2010-06-23 3:24:07 AM
    ...o sooner or later they will start to drop them.
    Governments should look at a 100% guarantee of citizen deposits, with say 90 days history ( not necessarily corporate/biz accounts because that is not so straightforward ). This means that citizens are confident that they will get their monies and hence avert any sort of runs on the banks - your biggest headache in any banking crisis. This is on the Liability side of bank Balance Sheets.
    Government should not want to bail out the Asset side of the banks' Balance Sheets because those assets will likely be inflated in any sort of asset bubble, and in a severe enough correction that inevitably follows, may lose as much as 1/3 if not more in value.
    As well, given the huge slosh of funds, it is doubtful if any government or global bank tax have any chance of bailing out all bank and investment banking assets, while also guaranteeing citizens' deposits as well - i.e. trying to bail out both sides of a deposit-taking banks' Balance Sheets as well as the Assets of investment/merchant banks' Balance Sheets is a very tall order.
    A global bank tax could become a default insurance scheme that invites moral hazard.
    Post a reply