Hedge Funds, Private Equity Firms Eye Troubled Spanish Lenders

Mar 25 2011 | 11:55am ET

As Spain continues to struggle with Europe's sovereign debt crisis, its banks are looking for bailouts elsewhere: to hedge funds.

"Spain is crawling with hedge fund and private equity people" considering investments in the country's regional savings banks, which are saddled with busted loans due to the bursting of Spain's property bubble, one savings bank executive told the Financial Times. Among the alternatives looking at the troubled Spanish banks are Apax Partners, Cerberus Capital Management, Paulson & Co. and Soros Fund Management.

Those talks hit a roadblock when the banks, including Bankia and Banca Civica, turned their noses up at the low valuations on offer. But everything changed when Moody's Investors Service slashed the credit ratings of 30 Spanish lenders, noting that it is "increasingly likely that the sovereign will not be prepared to write all banks a blank cheque."

Now, facing a government-imposed deadline to recapitalize, the banks are back at the bargaining table. And at that table, they're hearing more bad news.

Bankia, which plans to raise up to €3 billion in a stock listing, "needs much more money than they are trying to raise," one potential investor told the FT. "Bankia still doesn't have a CEO, and we have not seen the real numbers. They want €2 billion to €3 billion, but they could need as much as €7 billion to be an attractive investment."

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