Goldman sets $40 billion clean energy investment plan

(Reuters) - Goldman Sachs Group Inc plans to channel investments totaling $40 billion over the next decade into renewable energy projects, an area the investment bank called one of the biggest profit opportunities since its economists got excited about emerging markets in 2001.

Goldman executives said this week that demand for alternative energy sources will grow with global energy demand, and as big manufacturing countries, including China and Brazil, set more aggressive targets for reducing emissions. The bank plans to finance deals with clients' money and, to a lesser extent, its own funds.

Goldman, which plans to announce the new target at its annual meeting on Thursday, already invests in clean technology. In 2011, it helped finance $4.8 billion in clean technology companies globally, and co-invested more than $500 million in that area. The new target would average out to $4 billion a year, leading some analysts to minimize the target as more of a "charm offensive" than a new initiative.

In 2005, Goldman pledged to invest and finance $1 billion of environmentally friendly projects. By the end of 2011, the company had exceeded its goal, arranging $24 billion worth of financing and investing $4 billion into such projects, said Kyung-Ah Park, head of environmental markets at Goldman.

The bank's new $40 billion target applies to investments and financings for solar, wind, hydro, biofuels, biomass conversion, energy efficiency, energy storage, green transportation, efficient materials, LED lighting and transmission.

Goldman has also pledged to reduce its own net carbon emissions to zero by 2020.

Stuart Bernstein, head of Goldman's clean technology and renewables investment banking group, compared the opportunity to technology investments in the 1990s or investing 10 years ago in fast-growing countries like Brazil, Russia, India and China, for which Goldman economist Jim O'Neill coined the term "BRIC" in 2001.

"This is another emerging opportunity we think will be quite large," Bernstein said.

Enthusiasm for renewables was high in 2006 and 2007 as oil prices soared. But enthusiasm waned after the financial crisis cut energy demand and cash-strapped governments reduced subsidies for alternative energy programs.

The use of hydraulic fracturing technology to access abundant supplies of natural gas in the United States and elsewhere has also undermined alternative sources of energy.

"Obviously we recognize this is not the easiest of times in the clean energy market but nevertheless the underlying thesis as to why cleaner and more sustainable forms of energy need to scale up still holds true," Park said.

CHARM OFFENSIVE

Analysts and experts said Goldman may also be looking to score public relations points for a relatively small investment.

The bank has been on a charm offensive in recent months, after a former employee wrote a scathing opinion piece in the New York Times in March accusing Goldman of ripping off clients regularly. That was the latest in a series of blows the bank's image has suffered since the financial crisis.

"It's forcing a firm that had its roots in being private for a very long time to have to go out there and defend itself," said Michael Carrazza, a former Goldman banker who is now CEO of the private equity firm Solaia Capital Advisors. Promoting these sorts of initiatives makes sense, to show that the bank does some good, Carrazza added.

(Reporting By Lauren Tara LaCapra)

Spain to inject $11.3 billion funding gap at Bankia

MADRID (Reuters) - Spain said on Wednesday its rescue of problem lender Bankia would cost at least 9 billion euros ($11 billion), as the government tries to clean up a banking system that threatens to drag the country deeper into the euro zone crisis.

Losses at Spain's fourth largest bank are central to investors' fears that the country's fragile financial system, already vulnerable to rising default rates in a recession, could push Spain to seek an Irish-style bail-out.

Bankia's new management team will undertake a complete assessment of the lender's capital needs and will present its plan in mid-June, Economy Minister Luis de Guindos said in a presentation to a congressional committee.

The government will recapitalize Bankia's parent group BFA using the state-backed bank restructuring fund, the FROB, and then will fund Bankia through a capital increase including preferential shares for existing shareholders, he said.

He said the Bankia rescue would include 7.1 billion euros in provisions for losses from bad loans and 1.9 billion euros in capital buffers, as well as address valuations flagged by Bankia's auditors.

The clean-up of Bankia and BFA, which account for 10 percent of deposits in Spain, would take care of most of the problems in the country's banking system, he said.

"I insist BFA-Bankia is a specific case and it's not correct to extrapolate its problems to the rest of the Spanish financial system," he told lawmakers.

Bankia was partially nationalized earlier this month when it became clear it could not handle losses stemming from a 2008 property crash. But economists said the focus had now moved on the banking sector as a whole.

"The market has moved beyond Bankia. How much Bankia will get in aid is not going to make a big difference," said Martin van Vliet, senior economist at ING.

"The question is now about the long-term solvency of parts of Spain's banking system, especially what is going to happen with mortgage loan default. This concern is not being addressed."

Prime Minister Mariano Rajoy reiterated on Wednesday that Spain would not seek external funds to bail out its banks.

"The government has no interest and no intention in accessing any funds from the European Union or any other organization," Rajoy said following a meeting with French Prime Minister Francois Hollande on Wednesday.

A leading banking industry group, the Institute of International Finance (IIF), has said Spain's banks could need another 76 billion euros to cover losses as bad debts might rise as high as 260 billion euros.

Spain's banks hold 656 billion euros of mortgage debt, around twice their exposure to housebuilder loans. While the rate of loan default amongst real estate developers is around 21 percent, the mortgage default rate is low at 2.8 percent.

"Despite high levels of unemployment, default rates on mortgages are relatively low," said Maria Jose Lockerbie, managing director at Fitch Ratings, adding that this was partly due to low interest rates making debt service costs bearable.

However, economists fear the number of Spaniards defaulting on their mortgages could rise given the country's recession-bound economy and sky-high unemployment of 24 percent.

Financial markets are closely watching the banking sector to see if Spain will become the next casualty in the debt crisis that started in Greece. Four of Greece's largest banks got an 18 billion euro recapitalization on Tuesday.

The Spanish benchmark 10-year bond traded at a 6.2 percent yield on Wednesday, not far off the 7 percent level that is seen as unsustainable for a country's finances.

Spain last week converted 4.5 billion euros of state loans to parent company BFA (Banco Financiero y de Ahorros) into equity, giving it a majority stake in Bankia and partly nationalizing the lender.

GOLDMAN'S FEES

The government has picked Goldman Sachs to value Bankia and consultancies Oliver Wyman and Roland Berger were hired to audit other banks' loan books, damaged by a property crash that helped push bad loans to their highest in 18 years.

Spain has chosen outside auditors to reassure investors and European Union leaders, who were meeting at a summit on Wednesday, that Madrid has the situation under control.

Banking sources questioned whether consultants could wring more information from lenders than has already been given to institutions such as the International Monetary Fund and the central bank.

There have also been questions about the size of the fees the companies would earn at a time when the government is cutting spending to hit stringent budget deficit targets.

Advisers who have worked on other government bank restructurings said fees for Goldman Sachs would likely be lower than for other deals, with most firms agreeing to do such work for the prestige and in the hope that it brings new business.

One banking source said such government work usually commands fees of less than 500,000 euros. ($1 = 0.7838 euros)

(Additional reporting by Julien Toyer and Sonya Dowsett; Writing by Sonya Dowsett; Editing by Anna Willard)