npl-reo Market News: Spanish Real Estate Intelligence

BBVA Sells €1-Billion Portfolio of Development Loans to Canadian Fund
16 June 2018 The bank’s real estate exposure in Spain will fall to almost nil by the end of this year, after having been reduced by some 21 billion euros over the last two years. BBVA is taking its last steps in its quest to eliminate the risk stemming from the toxic assets it inherited from the swift end of the real estate bubble. Yesterday, the bank finalised the sale of a portfolio of loans to developers valued at approximately 1 billion euros to the Canadian pension fund CPPIB, sources in the financial industry stated. It is the largest sale of a specialised portfolio of loans to developers in the Spanish market. The developments included in the transaction, baptised Sintra, can be found throughout Spain. The financial institution had been probing the interest of opportunistic funds since the end of 2017, looking to rid itself of a portfolio valued at a gross amount of about 1.5 billion euros, as reported by Expansión. Large funds, such as Lone Star, Blackstone and Apollo, were believed to have been interested in such credits, which are tied to real assets. PwC advised the bank on the transaction. Official sources at BBVA declined to comment. With this latest sale, BBVA will reduce its exposure to the real estate sector to almost nothing. Pressure from national regulators and the need to free up provisions added to the bank’s efforts to sell off the toxic assets. Early success BBVA’s gross exposure to real estate stood at €15.352 billion as of March. Taking into account the sale to the Canadian pension fund and a separate transfer of assets to a company controlled by the fund Cerberus, the bank’s risk linked to property will be reduced to just €1.352 billion. That is €20.783 billion less than at the end of 2016. The bank will thus achieve its goal of reducing its real estate exposure almost entirely a year and a half ahead of schedule. BBVA has been one of the most active financial institutions in real estate sales since the beginning of 2017. The most relevant transaction was the bank’s agreement with the American fund Cerberus to create a joint venture in Spain. The operation was negotiated last November and is expected to be finalised in September. The real estate assets covered in the agreement include some 78,000 properties with a gross book value of €13.billion. Cerberus will control an 80% stake in the company, while the bank will hold on to the remaining 20% while managing to shed the toxic assets from its balance sheet. However, BBVA has also negotiated several other major real estate transactions. In mid-2017, the bank sold the Jaipur project, another portfolio of loans to developers valued at 600 million euros (total gross debt at nominal value), to Cerberus. The bank has also reduced its exposure to companies linked to the real estate market. This was apparent in Metrovacesa’s IPO this year, which relieved the bank of its 27% participation in the company. 37% of product sales are conducted online BBVA has doubled the group's digital sales. In the first four months of the year, 37.5% of the financial institution’s total sales were conducted through digital channels. The bank is doubling down on its digital strategy, foreseeing "accelerated and consistent" growth in the number of its customers that access the bank’s products through these channels, it announced yesterday. The trend has led the bank to bring forward its objectives in its digital transformation. The financial institution expects that 50% of its customers will access its services using digital means by the end of this year or at the beginning of 2019. In March of this year, when the bank presented its most recent audited accounts, BBVA had 19.3 million customers who used mobiles to access the bank's products and services, an increase of 43% compared to March 2017. That is equivalent to one-third of its total customer base. Now, the bank expects to reach the milestone of having half of its customers accessing using digital means. At the moment, the bank has 24 million customers that access digitally, equal to 45% of its total customer base, a growth of 25% compared to March 2017. Tangible benefits The bank argues that its digital strategy has tangible benefits on its accounts by improving efficiency and boosting recurring revenues. In fact, the group is already profitable in all the markets in which it operates, including Spain. BBVA justifies its digital focus stating that such customers acquire more products and stay loyal. In fact, they have an abandonment rate that is 57% below that of traditional users. The biggest differences are in Mexico, Turkey and Spain. Original Story: Expansión - R. Sampedro Photo: JM Cadenas / Expansión Translation: Richard Turner
Sareb Quarantines its €30bn Mega-Portfolio Entrusted to Goldmans For The Time Being

11 June 2018 - El Confidencial

The most important operation in Sareb’s history is going to have to wait. Despite the wishes of Goldman Sachs, the bank charged with leading the sale of €30 million in toxic assets, to formally launch the process before the end of June, the entity chaired by Jaime Echegoyen would rather be cautious and have everything locked down, and well locked down, before it gives the final green light to an operation of this magnitude.

Particularly, when its largest shareholders, the State through the FROB, has just experienced an unexpected change of Government. Although sources at Sareb insist that a firm date has not yet been set for this sale and that all of the work carried out to date has been preliminary, during the conversations that Goldmans held with interested funds before the vote of no confidence (in the Spanish parliament), it was understood that the process would begin this month, according to several sources in the know.

Nevertheless, the change in the political panorama, which has resulted in Pedro Sánchez’s appointment as President and Nadia Calviño as the Minister for the Economy, lends itself to prudence, to avoiding any rushed decisions and to allowing time for the new Government to analyse this operation. Above all, when one of the objectives of the PSOE’s economics team has, for months, been to conduct a thorough audit of Sareb to understand the real extent of the public debt as a whole, according to Voz Pópuli.

The sale of the portfolio entrusted to Goldman would allow Sareb to decimate its liabilities in one fell swoop and generate two years worth of revenues in a single operation. The question is at what cost, in other words, what losses would such a divestment generate, given that all of these sales are being undertaken at discounts that the bad bank is finding very difficult to bear.

In fact, in order to play in this league of major operations, Sareb has been analysing for months all kinds of formulae to reduce its losses. One way of mitigating the losses and achieving better offers is to share the ownership of the capital of the new company to which these toxic assets would be transferred, like Santander and BBVA have done in similar cases.

Another lever that has already been analysed is to take advantage of the FAB (Banking Assets Fund) – that Sareb created in its early stages, because that would provide the operation with tax incentives, or associate it with the servicing contract, which has been in the hands of Haya until now.

That “servicer”, which is controlled by Cerberus, manages all of the toxic property that Bankia transferred to Sareb, whose deficit was the largest, in absolute numbers, of the bank rescue, another important argument why the new Government wants to understand in detail the design and consequences of the Goldman operation before giving it the green light, or not.

What is happening with Ebro and the property development plans?

(…) In terms of the entity’s other two star projects: the search for a partner to promote €800 million in residential assets and the sale of a €10 billion portfolio baptised Ebro.

The former has two finalists, Aelca and Aedas, and looks to be on schedule for a winner to be selected ahead of the summer (…).

In the case of Ebro, Sareb’s decision to not go ahead with this portfolio responds to, amongst other reasons, the fact that some of the perimeter proceeded from Haya assets, which are the ones that make up the entire Goldman portfolio, and so a decision was taken to desist from this project to give priority to the Goldman deal.

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake

BBVA will be Twice as Profitable Following its Property Sale to Cerberus

11 June 2018 - Expansión

BBVA is going to double its profitability once it has completed the sale to Cerberus of its €13 billion real estate exposure, scheduled for the third quarter of the year. According to a recent report from Alantra, the ROTE ratio (Return on Tangible Equity) will leap from 7% to 15% in 2020. In addition to the aforementioned operation, which will eliminate in a flash the hefty maintenance costs associated with those properties, there will also be a positive impact resulting from the first upwards movement in interest rates (...).

The main advantage of removing the non-performing assets from its balance sheet is that it will allow the bank’s returns to flourish, which would otherwise be blocked. The key to being able to do this is having sufficient provisions to ensure that the sale of a large package to a specialist fund does not lead to significant losses on the income statement.

The operation between BBVA and Cerberus was the second largest of its kind in Spain last year. The largest was the deal involving Santander and €30 billion in property from Popular, which was sold to Blackstone.

BBVA created a company with Cerberus, controlled 80% by the US fund and 20% by the bank, to which it transferred 78,000 properties. Cerberus appraised them with a discount of 61%.


47% of those assets are located in Cataluña, historically the region covered by CatalunyaCaixa and Unnim, and absorbed by BBVA during the crisis. The Catalan political crisis, which reached its peak in October 2017 with the holding of an illegal referendum, came close to thwarting the operation. These homes will be managed by Haya Real Estate, the real estate management platform owned by Cerberus.

BBVA granted Cerberus a €800 million loan to finance part of the acquisition.

Following the deconsolidation, the bank’s real estate risk will be reduced to €11.4 billion. It barely has any doubtful property developer debt.

Original story: Expansión (by R. Lander)

Translation: Carmel Drake