Spain's "Bad Bank" Leaves RMBS Out

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The Royal Bank of Scotland said in a report today that the Spanish financial entity established to take over risky loans, but not RMBS, will begin operations on Nov. 19 under the name of Sareb.

Sareb will take on up to €90 billion ($117 million) in so-called "toxic assets", RBS said in the report. However, the purchases will exclude mortgages that form part of the collateral for securitization transactions, according to RBS.

"Establishing the institution was a condition set by the European Union in exchange for aid of up to €100 billion to the Spanish banking sector," said analysts in the report.

Standard & Poor's downgrade Spain to 'BBB-' from 'BBB+' on Oct.11 and has suggested that the rating would fall a notch further if political support a reform agenda weakens, borrowing exceeds 100% of GDP or if borrowing costs reach "unsustainable" levels.

RBC said in a report last Thursday, that the downgrade means that Spanish securitizations now have a ratings cap of 'AA-', which would fall further if the government loses its investment grade rating. "In the immediate future, this leaves an estimated EUR 17bn of placed securitization notes at risk of downgrade, of which €14 billion are RMBS and €550 million are ABS," analysts said in the report.

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