By Sonya Dowsett and Carlos Ruano
MADRID (Reuters) - Spain's Santander
"The bank plans on investing in the bad bank," a spokesman for Santander, Spain's biggest bank, told Reuters on Saturday.
Spain has set up the bad bank to siphon off toxic real estate assets from bank balance sheets that date from the property crash. The bad bank's creation is a condition of receiving up to 100 billion euros ($127 billion) of aid in a European bail-out of the country's financial sector.
Spain's second biggest bank, BBVA
The bad bank's managers are currently in talks with BBVA, Sabadell and Barcelona-based Caixabank
An Economy Ministry source said on Friday the bad bank could go ahead just with backing from domestic investors but foreign investors would give it credibility.
The bad bank will initially have equity of 3.9 billion euros. But the government needs private investors to stump up 2.2 billion euros, or 55 percent of this, in December, the Economy Ministry source said on Friday.
Private sector support is key because the government wants to keep its stake in the bad bank below 50 percent to reduce the burden on state finances.
The bad bank, known as Sareb, will initially receive assets - such as soured loans to housebuilders and foreclosed property - from four state-rescued banks, including Bankia
The equity in the bad bank could rise to 5 billion euros after including assets from a further group of banks, aside from those taken from the state-rescued banks, the source said.
The government hopes eventually to capture 500 million euros of investment from foreign investors, or 10 percent of the final equity tranche.
The rest of the bad bank will be financed by senior state-backed bonds.
Government sources said on Friday that Spain's bank restructuring fund, the FROB, could use part of the European aid to invest in the bad bank, and as such, would not need to tap markets.
(Reporting By Sonya Dowsett. Editing by Jane Merriman)