Spain's Banks Sold Toxic Assets Worth €50.8bn to Funds in 2017
23 April 2018 - La Vanguardia
Last year, Spain led the sale of defaulted mortgage portfolios in Europe, with the sale of loans with a nominal value of €50.758 billion (of the €104.0 billion that were sold in Europe in total), according to a study on problematic real estate debt compiled by the consultancy firm Evercore. In 2017, Santander, with the sale of Popular’s property to Blackstone for €30 billion, and BBVA, with the sale of a portfolio worth €13 billion to Cerberus, were ranked amongst the top five vendors in Europe. “It is likely that we will be leaders in the sale of foreclosed properties and defaulted mortgages again this year and next”, says Íñigo Laspiur, Director of Corporate Finance at the consultancy firm CBRE. “At the moment, portfolios worth more than €8 billion are up for sale in the market”.
During the first few years of the financial crisis, it was entities in Ireland and the United Kingdom that led the sale of foreclosed real estate assets in Europe, but now the Spanish and Italian banks have taken over the baton (the latter led the ranking for the first quarter of this year). “Regulation by the ECB, which has caused provisions to soar, and above all, accounting guidelines, which have forced banks to increase their capital requirements, are accelerating the sales of toxic assets”, said Laspiur. Moreover, these sales are being boosted by the recovery of the real estate market and by the high level of provisions that the banks have now recognised. “Most sales by the banking entities these days make money, or at least, don’t generate losses”.
Laspiur explains how this means that the funds are accepting higher prices for toxic Spanish property: whilst in 2013, when Sareb began its first block sales, they were demanding returns of 15% per annum to buy assets, now the yields have decreased to just 8% when they are purchasing mortgage loans backed by high-quality properties.
Given their large size, the sales of asset portfolios are in the hands of just a few entities. “Only Blackstone, Cerberus, Apollo and Lone Star are bidding for portfolios worth more than €5 billion, whilst firms such as Bain Capital, Oaktree and Deutsche Bank are also very active in smaller operations”, said Laspiur. This lack of competition allows the funds to buy properties at prices well below market rates. “It is not only a question of size” – he adds. “The funds assume the risk of managing the debt (by negotiating with the debtor or in court) to take ownership of the property. It is a sophisticated process that appeals to few companies”. Nevertheless, for the financial institutions, “the sale of foreclosed assets and defaulted loans in large batches allows them to accelerate their cleanups and free up resources because selling them one by one would take years”.
Laspiur says that 2017 marked a turning point in the strategy of the banks to divest property. “Before, they were undertaking small operations. For example, Sareb, the most active entity, has completed more than 30 sales, followed by Sabadell, CaixaBank and Bankia. Nevertheless, last year, Santander and BBVA both created vehicles (companies) to which they transferred their bad assets, and then they sold them, but they retained a minority stake in each case, which allowed them to deconsolidate the assets but hold onto some of the ownership rights in order to benefit from the price rises being seen in the real estate sector”, said Laspiur. “It is a very good formula, and I think we are going to see more operations of a similar ilk this year”. In his opinion, Sareb, CaixaBank and Sabadell are going to be the entities that will lead property sales this year.
Together, the financial institutions in the south of Europe now account for the bulk of the foreclosed properties and defaulted loans in Europe, according to data from the consultancy firm Evercore, which forecasts that operations worth around €80 billion will be closed this year, with Spain leading the ranking once again (at the moment, it accounts for 78% of the portfolios up for sale in Europe, according to the consultancy firm) (…).
Sareb, the European bad asset leader
The Spanish bad bank or Sareb is the largest owner of toxic assets in Europe, according to Evercore, with foreclosed assets amounting to €75 billion, ahead of the bad bank of Ireland (which has €27 billion) and the UK (€20 billion). The hardest hit banks are Italian (Intesa San Paolo, Unicredito, Atlante Fund and Monte dei Paschi) and Greek (Pireus and Alpha) (…).
Original story: La Vanguardia (by Rosa Salvador)
Translation: Carmel Drake