We know NPL in Spain for real estate companies are awful. They are also bad for other kinds of non financial companies. However in many cases, the companies are economically viable as far as excess debt problems are cleaned and new capital made available. There are 20,000 such companies in Spain.
The country plan is at the basis simple: Get the banks convert part of the debt into capital, for an amount like €150bi.
That plan became visible in March 2014, with the government taking some measures to make the operation possible. In short all demands of the banks are being answered, and situation has reached the point that 4 big companies have been chosen to validate the process with as target date "before summer". Full scope is 20,000 companies.
Here are some example of the measures (Overview - ES):
- New rules to make a minority of creditors unable to block a restructuring
- In case a restructuring occurs, the provisions linked to the debt (not converted into capital) can be released immediately.
- In case of bankruptcy, rules for the banks to keep precedence for the new capital at what it was.
- Systematic dispense for the obligation to offer to buy the whole company when reaching 30% shares
- Work around to the way BIS III handles non financial participations in RWA calculations (1250% weight).
What the be the effect for the banks, and Santander in particular (should the operation be fully applied)?
- Banks will become major shareholders of many companies, placed in equity funds, kind of bad bank for private companies capital. This bad bank will take time to sell assets, to the further frustration of vulture funds.
- Part of the non performing loans will end as equity in the funds. The rest will stay as loans but by default will become performing. Major cleaning of the company related NPL.
- Indirect economic effects with many companies out of financial distress.
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