Royal Decree 1559/2012 ("RD 1559/2012") was approved on 15 November, which implemented and completed the legal regime generally applicable to asset management companies, and also included specific regulations related to the Sociedad de Gestión de Activos para la Reestructuración Bancaria (Asset Management Company for Assets Arising from Bank Restructuring, or "SAREB") colloquially known as "bad bank". The SAREB was finally set up on 30 November.


The use of asset management companies as a tool to restructure and resolve financial institutions was expressly provided for in Act 9/2012, of 14 November ("Act 9/2012"), on the restructuring and resolution of financial institutions (born from Royal Decree-Law 24/2012, of 31 August), which established that the Fondo de Reestructuración Ordenada Bancaria (Fund for Orderly Bank Restructuring, or "FROB") could instruct certain financial institutions to sell their impaired assets to an asset management fund.

The regulation of asset management companies contained in Act 9/2012 is twofold. On the one hand, Chapter IV contains the legal regime applicable in general to asset management companies created in the context of the reform of the Spanish financial sector. On the other hand, the Final Provisions (Seven to Ten) of Act 9/2012 contain the specific legal framework applicable to the SAREB.  


Asset management companies are defined in RD 1559/2012 as entities which are incorporated pursuant to article 35 of Act 9/2012 – i.e. instructed by the FROB – for the purpose of managing certain categories of assets that are particularly impaired or which are believed to be detrimental to the viability of a company were they to remain on its books.

The main purpose of asset management companies – created under RD 1559/2012 – is to assist in the restructuring or resolution of the financial institutions in connection with which they are created, thus laying the foundations to achieve the aims sought by those processes. Asset management companies have been devised to pursue the following objectives:

  • To contribute to the reorganization of the financial sector; by acquiring the relevant assets, the risks attaching to those assets will transfer with them from the very moment they are transferred.
  • To minimise public financial support.
  • To settle the debts and liabilities that they incur in the course of their business.
  • To minimise possible market distortion as a result of their actions.
  • To transfer or dispose of the assets they receive, optimising their value, within the period of time for which they have been created.

Assets eligible for transfer to asset management companies

The FROB is responsible for defining the categories of assets that can be transferred to asset management companies. However, article 5 of RD 1559/2012 establishes a series of criteria to define those assets:

  • General qualitative criteria: the nature of the asset, the transaction by which it was acquired and business activity to which it is connected.
  • Qualitative criteria particularly applicable to debt receivables: security, classification and geographical location of the real estate collateral.
  • Qualitative criteria especially applicable to real estate: usage, status, classification and geographical location.
  • General quantitative criteria: length of time on the balance sheet and value.
  • Quantitative criteria specific to debt receivables: value of the security.

The Bank of Spain will also be able, by circular, to expand on or more precisely define the categories of assets and specifications contained in article 5 of RD 1559/2012.

Valuation adjustments and transfer value

The valuation adjustment that a financial institution must make for each category of assets cannot be lower than the coverage established in the Bank of Spain's circulars on the accounting of financial institutions or than the coverage pursuant to Royal Decree-Law 2/2012, of 3 February, on financial sector reorganization and Act 8/2012, of 30 October, on the writedown and sale of the financial sector's real estate assets. However, the application of the valuation criteria contained in RD 1559/2012 could result in a higher valuation adjustment.

Different criteria have been established regarding the valuation of certain assets. In general:

  • Assets traded on an active market are valued at their market value on the valuation date.
  • Where assets are not traded on an active market, generally accepted valuation methods are used to estimate their economic value. If the estimate includes future cash flows, the valuation method used will take into account the temporary cash value in each period adjusted – at least – according to credit risk. If independent expert valuations are available, they will be used to determine the valuation adjustments.
  • When valuating real estate assets, the general characteristics that a purchaser would consider when deciding whether or not to purchase (e.g. geographical location, infrastructure, legal position, terms of sale, current supply and demand for similar assets) will be taken into account. Also to be taken into account is the ability of the real estate asset to generate income on the basis of its most likely and financially sustainable use. Where the book value of the real estate asset exceeds €3 million, it must be valued by an independent expert.
  • When valuating debt receivables, the expected loss throughout its remaining life must be reflected. In the case of debt receivables subject to a first-ranking security properly created and registered in the entity's favour, the value shall be the value of the security, minus any expenses necessary for enforcement and for the sale of the asset.
  • The economic value of transferred equity instruments shall be calculated at their market value on the valuation date when those instruments are traded on an active market.

If the instruments are not traded on an active market, their maximum value shall be the company's net book value, or will be zero if the company has filed for voluntary insolvency. If the total value of the company's assets exceeds €10 million and the instruments represent a proportional value of €3 million, a specific valuation must be conducted.

The Bank of Spain will decide on the transfer value of the assets that are to be transferred to the asset management companies according to the valuation estimate contained in the reports prepared by one or several independent experts based on the above valuation criteria. The Bank of Spain will adjust the valuations expressed in those reports according to the following criteria:

  • Hedging against the risk of unfavourable price fluctuations.
  • Provisions will be made for management, administration and maintenance expenses, and finance costs, associated with holding the assets to be transferred.
  • The prospects of divesting the shares transferred to the asset management company.

It is understood that:

  • Valuation date means the date on which an agreement is reached to transfer the assets to the asset management company. However, in the case of transfers of personal property and real estate assets, the valuation date may fall no earlier than 3 months prior to the date of the agreement to transfer, provided that the valuation parameters are not sensitive to significant change between those dates.
  • Active market is as defined in accounting regulations applicable to financial institutions.
  • Market value is the value in cash or cash equivalent that would be obtained from the sale of an asset in a normal transaction between participants in the market for the asset concerned which, acting independently from each other, are properly informed of the current nature and characteristics of the asset being traded.
  • Economic value is an estimate of the current value of an asset that the entity would receive if it voluntarily sold that asset, maximising the use of relevant observable market data, while minimising the use of non-observable data.

Observable data are data obtained directly from the market; non-observable data on the other hand are data which are not available from the market, but which have been ascertained using the best information available on the basis of the hypotheses that the market participants would use to set the price of an asset.

Rules of transfer

  • The following terms and conditions will apply to all transfers of assets to asset management companies:
  • No third-party consent will be required for the transfer. Furthermore, the transfer can be made by any form of transaction, without meeting the requirements established for structural changes to corporate enterprises. Provisions of a company's articles of association or contractual clauses that limit the transferability of shares will not apply to the transfer and no liability or damages may be claimed based on a breach of those provisions or clauses.
  • The Bank of Spain's valuation of the assets to be transferred will prevail over the valuation made by an independent expert, as provided by the Spanish Companies Act.
  • The FROB may require, before the assets are transferred, that they are consolidated in a company or that operations of any kind be carried out to assist in their transfer.
  • The transfer cannot be cancelled as a result of any of the clawback provisions contained in insolvency legislation.
  • Article 1,535 of the Spanish Civil Code will not apply to the transfer of disputed debt receivables.
  • The acquirer has no obligation to launch a takeover bid in accordance with stock market legislation.
  • The transfer will not amount to succession or an extension of liability for tax or social security payments, except as provided in article 44 of the Spanish Workers' Statute.
  • The asset management company is not subject to any tax liabilities accruing or incurred prior to the transfer as a result of the ownership, exploitation or management of the assets by the transferring company.
  • The transferor will not be liable for the solvency of the debtors in the case of debt receivables; if the assets are transferred by means of a spinoff (escisión) or carve-out (segregación), article 80 of Act 3/2009, of 3 November, on the structural modification of corporate enterprises (which provides for the joint and several liability of the beneficiaries) will not apply.  



The SAREB is a public limited company incorporated by the FROB for up to 15 years and is governed by Act 9/2012 (and by the Spanish Companies Act). The SAREB was incorporated on 30 November with an initial share capital of €60,000.

The sole corporate purpose of the SAREB is the direct or indirect custody, management and administration, acquisition and disposal of the assets transferred to it by financial institutions with the aim of restructuring and reforming the Spanish banking sector, as well as any other assets that it comes to acquire in the future as a result of the management and administration of those assets.

According to the information published by the FROB, the SAREB will conduct its business as if it were a real estate restructuring company and not a financial institution, and it will have the flexibility necessary to manage its assets and obtain financing in the manner that is most commercially beneficial.

The SAREB may have the following shareholders:

  • the FROB itself;
  • financial institutions;
  • insurance companies;
  • financial investment firms;
  • collective investment companies;
  • private equity companies and funds;
  • foreign entities whose activities are similar to the above;
  • listed public limited real estate investment companies; and
  • the entities included in letter c) of article 78.3 bis of the Spanish Securities Market Act; i.e., the entities that meet two of the following requirements: they have total assets equal to or exceeding €20 million; their annual turnover is equal to or exceeds €40 million; their equity is equal to or exceeds €2 million.

Public ownership of the SAREB's capital must be lower than 50%.

Management and operational structure

The SAREB is governed by a board of directors of between 5 and 15 members. All members of the board of directors must be of recognised commercial and professional integrity and have suitable knowledge and experience to perform their duties properly. At least a third of the members of the board must be independent directors, according to the definition contained in the Unified Code of Good Corporate Governance. An audit committee and a remuneration and appointments committee will also be set up.

Although the SAREB is subject to the supervision of the Bank of Spain, its operations will also be subject to monitoring by the Monitoring Committee, as provided in Act 9/2012, which will ensure that the SAREB meets its underlying purpose.

Other than the general obligations to draft annual accounts and other disclosure obligations required of public limited companies in Spain, every six months the SAREB will prepare a business report in which it will include, systematically and in a clear and easily understandable manner, the essential information related to its activities during the period in question, the extent to which the targets established in its business plan have been met and explanations for any deviations from those targets. It will then send that report to the Bank of Spain and the SAREB Monitoring Committee.

According to the information published by the FROB, from the moment the SAREB begins to operate, it will use the services of its financial institution stakeholders, which will be responsible for the day-to-day management of the loan and asset portfolios contributed, according to very strict service quality agreements. However, under those service quality agreements, the financial institutions shall not hold discretional powers over those assets.

Financial structure

According to the information published by the FROB, the SAREB will require two primary sources of funding:

  • Senior debt secured by the Spanish state to be issued against the assets received by the SAREB from the credit entities.
  • Subordinated debt and share capital to be subscribed for by private investors and the FROB.

The SAREB may issue securities and borrow funds from financial institutions in compliance with European and Spanish financing mechanisms.

The debt issued against the assets will have the following characteristics:

  • It will be subscribed for by the financial institutions that are stakeholders when the assets are transferred.
  • It is eligible for trading, subject to ordinary listing requirements and subject to the supervision of the Spanish market regulator, the Comisión Nacional del Mercado de Valores.
  • It will be secured by the Spanish state.
  • It will be structured so as to meet all the requirements for acceptance as collateral by the European Central Bank.
  • It will be structured so as not to generate excessive liquidity pressures as a result of refinancing requirements.
  • It will be structured so as not to restrict the SAREB's ability to freely manage its assets.
  • It will be tradable without any restrictions whatsoever.

As mentioned above, private investors will hold more than 50% of the SAREB's share capital and subordinated debt.

Assets to be transferred to the SAREB

The following entities have an obligation to transfer their assets to the SAREB: entities in which the FROB holds a majority stake when Royal Decree-Law 24/2012 enters into force and which, according to the Bank of Spain and after an independent assessment has been conducted as to the capital requirements of the Spanish financial system, will require a restructuring and resolution process being opened as provided in Act 9/2012.

The following assets will be transferred to the SAREB:

  • Real estate assets acquired or awarded in payment of debts, which appear on the balance sheets of financial institutions on 30 June 2012 and which have a net book value, after valuation adjustments have been applied, exceeding €100,000.
  • Loans or credit used to finance land for property development or to finance construction or property development in Spain (except those classified as recovered written-off assets) and profit sharing loans given to real estate companies or their related companies, provided that they appear on the balance sheet of the entity on 30 June 2012 or come from their refinancing on a later date, and have a net book value, after valuation adjustments have been applied, exceeding €250,000.
  • Real estate assets and debt receivables meeting the above requirements from real estate sector companies, or their related companies, over which the financial institution exercises control in accordance with article 42 of the Spanish Commercial Code.
  • Instruments representing the share capital of real estate sector companies, or their related companies, which afford the financial institution or any entity belonging to its group joint control or a significant influence over them and the FROB decides that a transfer of assets is appropriate.
  • Other loans connected to property development, or small and medium-sized enterprises, or home mortgages, when decided by the FROB.

The transfer value of the assets transferred to the SAREB cannot exceed €90 billion. When the transfer value of the assets transferred to the SAREB reaches that figure, the FROB will stop any further assets from being transferred.

The first entities to transfer their assets to the SAREB are BFA-Bankia, Catalunya Banc, Novagalicia Banco and Banco de Valencia. The transfer was due to begin on 1 December and should be completed by the end of the year; in all, approximately €45 billion of assets are to be transferred to the SAREB.

According to the information published by the FROB, it is estimated that the transfer value of the assets will represent a discount of around 63% over those assets' book value. By asset type, that discount is estimated to be 79.5% for land; 63.2% for on-going uncompleted developments and 54.2% for completed homes. As funding to developers, the average discount will be 45.6%, including adjustments of 32.4% for completed projects and 53.6% for loans granted to finance urban land.

Bank Asset Funds

The SAREB will be able to set up separate blocks of assets – without a legal personality of their own – called bank asset funds ("BAF"). A BAF will be initially composed of the assets and liabilities transferred to it by the SAREB as well as by other elements listed in RD 1559/2012 (such as securities issued by the BAF, cash and other liabilities transferred by the SAREB).

Transfers by the SAREB of assets and liabilities to a BAF are governed by Act 9/2012 and RD 1559/2012. The latter regulation also contains provisions governing the merger, spin-off, winding up and liquidation of a BAF, as well as its incorporation and operation.

The incorporation, management and representation of BAFs will be entrusted exclusively to a securitisation fund manager, which must meet the requirements contained in Act 9/2012 and RD 1559/2012. Entities authorised to manage them before Act 9/2012 entered into force must have their authorisation re-approved.

Tax implications of transferring assets

According to the Fifteenth Final Provision of Act 9/2012, the following transactions are exempt from Spanish transfer tax and stamp duty:

  • The transfer of assets and liabilities and the granting of security, when the tax in question is payable by the SAREB
  • The transfer of assets and liabilities of the SAREB to companies in which the SAREB has a direct or indirect stake of at least 50% in their share capital, equity, earnings or voting rights either when the transfer takes place or as a result of that transfer.
  • The transfer of assets and liabilities by the SAREB to the BAFs.
  • The transfer of assets and liabilities among the different BAFs.
  • Share capital reductions or the winding up of the SAREB, entities in which it holds a stake of at least 50% in their share capital, equity, earnings or voting rights either when the transfer takes place or as a result of that transfer, or capital reductions or the winding up of the BAFs.

The Sixteenth Final Provision of Act 9/2012 establishes that the tax on the increase in value of urban land will not accrue on the above transactions.

The tax treatment of the above contribution or transfer of assets among the BAFs will apply for as long as the FROB remains exposed to the BAFs, which is the same as the term for which the SAREB is created.

The SAREB's business plan

The primary aim sought by the SAREB is to divest all of its assets within 15 years, for which it will be able to use all means at its disposal.

A business plan has been devised, which has yet to be approved by the SAREB, containing the following main features:


  • The potential sale or assignment of loans or portfolios will be considered case by case, provided that it is commercially justified.
  • The SAREB will participate in the restructuring, refinancing and cancellation of the loans. However, debtors will be required to provide 100% of their available cash flow to satisfy their obligations to the SAREB; an attempt will also be made for unencumbered assets to be used as additional collateral.
  • Exceptionally, additional financing may be advanced to a debtor.

Owned real estate properties:

  • The decision on whether or not to sell will depend on market conditions and the liquidity of the asset or portfolio in question.
  • Finished properties will be sold or leased, depending on the most viable commercial strategy at the time.
  • Unfinished developments can be sold in their current condition, or they can be completed if there is an economic rationale for doing so.
  • Land shall be sold or, in exceptional circumstances, be sold for companies to develop.

According to the information published by the FROB, a conservative estimate of SAREB's return on equity (RoE) will be around 14-15%.