Spain flirts with foreign investors in rescued bank sell-down

Reuters

By Sarah White and Jesús Aguado

MADRID (Reuters) - Spain is opening the door to foreign investment funds interested in buying into its rescued banks, though outside investors will likely struggle to gain control of big lenders which may yet need extra government help to smooth a sale.

Spain's Economy Minister Luis de Guindos said on Tuesday international investors were among those circling NCG Banco, a state-rescued bank from the northern region of Galicia that is coming up for auction at the end of September.

"There's interest, not only from domestic banks but also from some foreign funds," De Guindos said in an interview with Cadena Ser radio.

The bank is one of several to have been nationalised after a five-year-long property crash. Along with Barcelona-based Catalunya Banc, it took some of the biggest chunks of a 41-billion-euro (34 billion pounds) European rescue last year.

The government is hoping to sell the two banks in the coming months, in one of the biggest tests yet of its ability to move on from a crisis that has dragged on Spain's state finances as it struggled to rein in a gaping deficit.

Foreign funds such as private equity firms have succeeded in picking up portfolios of failed loans on the cheap in recent years as weakened banks shrank their balance sheets, and some are also buying assets in the property sector.

But few have yet managed to acquire banking networks.

One encouraging sign for foreign investors interested in NCG Banco is that its smaller EVO Banco subsidiary - an 80-branch network operating outside NCG Banco's core Galicia, Asturias and Leon regions - will likely be sold to outsiders.

U.S. private equity firm Centerbridge and London-based AnaCap - two of the firms looking at 315 Royal Bank of Scotland (RBS.L) branches in Britain - are among bidders in late-stage talks to buy the unit, the Financial Times reported on Monday.

"All of the offers tabled are from international groups," said one source close to the bank.

AnaCap declined to comment while Centerbridge could not immediately be reached.

STATE AID A HITCH

The deal would give private equity groups a toehold in Spain's rapidly consolidating banking sector.

EVO Banco was created last year, in the wake of NCG Banco's bailout, amid a demand from Brussels that the lender retreat to its northern roots.

But bankers in Madrid are still doubtful EVO's sale to funds will pave the way for similar deals, even though firms such as U.S. buyout house J.C.Flowers are tipped to be interested in NCG Banco. J.C.Flowers and NCG Banco declined to comment.

With 60 billion in assets - versus the 670 million euros in credit EVO has on its books - NCG Banco is strategically more important, and is likely to attract interest from major domestic banks such as Santander (MCE:SAN), BBVA (MCE:BBVA) and La Caixa (MCE:CABK).

Crucially, many still believe it is unlikely to be sold without additional help from the government, even though De Guindos said on Tuesday that nationalised lenders would not need further cash injections.

That aid could come in the form of tax credits, created after NCG Banco posted steep losses last year, which could be activated if the bank makes profits in future.

Possible bidders are also pushing for asset-protection schemes, to protect them against future losses. Despite a clean-up of its toxic property assets, NCG Banco's bad loans as a percentage of outstanding credit stood at 16.1 percent in June, well above than the sector average.

The government is seen as unlikely to extend such aid to foreign funds, and the funds are deemed unlikely to want to snap up lenders such as NCG Banco whole as they are.

"NCG Banco and Catalunya Banc still have problems," said a source close to the NCG Banco auction process. "There will be more synergies with local banks, they will be able to take full advantage of the tax credits."

An attempt to auction off Catalunya Banc earlier this year collapsed when bidders asked for similar aid, which at that stage was denied by the government.

(Additional reporting By Sonya Dowsett in Madrid, Laura Noonan in Berlin; Editing by Julien Toyer and David Cowell)

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