The Banks Still Hold €77,250M Of Toxic Assets

13 June 2016 – El Mundo

The banks are still paying for the excessive risks that they assumed when they financed real estate operations virtually indiscriminately. Eight years after the burst of the real estate bubble, the default rate and volume of doubtful loans held by the top 12 banks have decreased, without exception.

Nevertheless, despite the balance sheet clean ups, the entities are still having to take on waves of land, buildings, homes and offices. By the end of 2015, the banks had absorbed €4,562 million more new foreclosed assets, which took the total volume of this toxic caption to €77,250 million. As such, they are having to take preventative measures and the recovery of their ordinary business is being hindered, according to a report prepared by Bankia’s research team.

The rescue of a sector in trouble may be hit by what is one of their major problems today. Since 2015, the recovery in prices and sales of the market that represents the main drag on the banks’ balance sheets is a relief for the sector because it allows the volume of sales of foreclosed assets to increase and at prices that are closer to the net values of the assets (which are discounted by the book value of the provisions recognised). This situation means that the banks will try to place significant portfolios of assets on the market over the next few months. The list of entities that are sounding out the wholesale market in search of buyers for their assets so far this year includes BBVA, Sabadell, Bankia, Popular…even Sareb, the so-called bad bank. (…).

Of the major Spanish entities to have survived the wave of mergers since 2010, BBVA is the one that held the highest volume of foreclosed assets at the end of 2015, with €16,138 million. Like in the case of Santander, that figure relates to property that the bank has had to take on in Spain and in the case of the group chaired by Francisco González, it is explained by the absorption of Catalunya Banc at the end of last year.

The entity created from the merger of the savings banks Catalunya, Tarragon and Manresa had already sold its portfolio of most problem mortgages to the investment fund Blackstone in April for €4,123 million (the portfolio had a nominal value of €6,000 million). Even so, BBVA is still, by far, the group that had to take on the highest volume of foreclosed assets in 2015: €2,385 million primarily land, which was 45% more than the second entity in the list, CaixaBank, which absorbed €1,634 million.

However, taking into account the recovery of the real estate market and the interest from investors, BBVA thinks that its exposure to toxic assets could be eliminated within a period of three years, as the group’s CEO, Carlos Torres, said in February. In this way, the asset digestion process could be entering its final phase, after a 2015 during which the entity sold around 21,080 foreclosed assets, 9% fewer than the year before, but with a significant increase in returns, which translated into capital gains of almost €120 million, compared with €17 million a year earlier.

At the other end of the spectrum are the entities that completed sales of assets to investment funds in 2015, which bought them at significant discounts. In this way, Kutxabank is the entity that liquidated its assets the quickest. Last year, it took a giant leap by reducing its volume of foreclosed assets by €1,503 million. In one of its major milestones, the bank created from the former Basque savings banks reached an agreement with Lone Star to transfer half of its real estate portfolio, held in the subsidiary Neinor, for €930 million and to grant a management contract for the other half.

Bankia, meanwhile, was the next entity that most reduced its foreclosed assets by the most, although its figures were much smaller than Kutxabanks, with sales of €352 million. (…).

Original story: El Mundo (by César Urrutia)

Translation: Carmel Drake

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