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ISSUE: TOP IBERIAN Investors //Legal & Real Estate
2016 / iberian.propery // 79
After that, the more notable cases are the National Assets Management
Agency (NAMA) in Ireland, in 2009, the Sociedad de Gestión de Activos
Procedentes de la Reestructuración Bancaria (SAREB) in Spain, in 2012,
and the Bank Asset Management Company (BAMC) in Slovenia, in 2013.
2.2 Principles and common models
The good/bad bank approach has had legal recognition and is expressly
contemplated by European law
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.
The ultimate purpose of AMC is to minimise the cost for the general
public of resolving impaired bank claims, by managing the assets until
market conditions improve and a higher sales price can be obtained.
On the one hand, transferring the distressed assets allows banks to (i) focus
on running the healthy parts of their businesses, and (ii) access funding
on more favourable terms, thus increasing their liquidity and reinforcing
lending activities. Conversely, distressed assets are managed by inde-
pendent professional specialists with a long-term plan for asset disposal.
The ECB
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distinguished two main approaches to asset support: the
“off-balance sheet”
approach and the
“on-balance sheet”
approach.
A. The
“on-balance sheet”
approach consists of asset insurance or asset
protection schemes, involving the ring-fencing of distressed assets
within the banks’ balance sheets. These schemes are typically de-
signed with a loss absorption structure.
The banks themselves remain liable for the first losses that accrue
in the pool of insured assets, while government support only begins
when this set level of losses has been exceeded.
This approach could be achieved by implementing the followingmodels:
a) Internal restructuring unit. This solution set out an
“internal bad bank”
,
which could be favourable when nonstrategic assets account for
a sizable share of the balance sheet.
b) On-balance-sheet guarantee. Through this planned way out, the
bank protects part of its portfolio against losses, typically with a
second-loss guarantee from the domestic government.
Implementing this model is not particularly expeditious, but could be
the least attractive model to new investors given that the bank’s core
performance is still not transparent: the bad assets are still on the balance
sheet and there is no clear legal separation.
B. The
“off-balance sheet”
approach consists of asset removal schemes. This
entails the segregationof distressedassets fromthebanks’balance sheets
and their transfer to an independent AMC (also known as bad bank).
Two basic models are usually identified within this approach:
a) External bad-bank: the bank moves the assets off the balance sheet
into a newcredit institution. Taking into consideration the challenges
involved in a bad-bank spinoff (setting up a new legal banking entity),
this model normally requires the full involvement of the domestic
governments. This operation requires asset valuations and transfer,
a funding scheme and a legal or accounting framework for asset
transfer to bad-bank entities to be readily available.
b) SPV: the bank divests its undesirable assets into a special-purpose
vehicle (SPV), which is generally government-sponsored.
“This
solution works best for a small, homogeneous set of assets, as
structuring credit assets into an SPV is a very complex move and for
many banks is not practical. The heterogeneity of the assets involved,
investors mistrust of securitization structures, and new regulatory
penalties make most securitizations too expensive for banks.”
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The key principle of modern corporate governance applies, also, in this
particular case: one size does not fit all. All debt deleveraging strategies
must be considered on a case-by-case basis, and depend on the actual
features and conditions of the distressed banks, that is, the domestic
characteristics in which the entity operates.
Besides, two factors may intricate the establishment of AMC in Europe:
(i) Eurostat put in place guidance under which most asset management
companies would be considered part of the public sector and therefore
subject to EU fiscal rules; and (ii) since 2015, public ownership of AMC
has become more complicated because it could potentially lead to a
‘bail-in’
of certain creditors.
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