Month: February 2013

Sareb, the bad bank, starts to compete in the retail real estate market. The institution started commercializing yesterday a first lot of 13000 properties among individuals, one way which will not be a priority, as most of the assets within Sareb (non developed properties and credits) will need to find its way into the institutional market.

Sareb will not sell the properties directly (it does not have a commercial infrastructure), but through agreements signed with those banks which have transferred properties to the company. The first agreement has been signed with Bankia, which will commercialize through its real estate subsidiary (www.bankiahabitat.es) and its net of branches those initial 13000 properties. They were transferred to Sareb from Bankia one month ago. In the next few weeks more agreements will be signed with other nationalized banks and other groups which will transfer a new lot of assets to Sareb. (…)

One of the keys of the management agreements signed between Sareb and other institutions is the commission these will charge for selling the properties. The negotiations are still open, but the starting percentage will be around 3%, according to financial sources.

This could increase depending on a system of flexible commissions and incentives which is still being drafted. It establishes that the initial commission, which will be paid to the institution for managing the asset, could be increased if the bank also sells the property and grants financing to the buyer. The features of the financing will be established by Sareb and the institutions in a joint strategy, although the banks will have the last word.

The mortgages will stay in the balance sheets of the banks and will therefore have to be operations with market conditions, with strict risk criteria (there are no plans of financing more than 80% of the value of the property) and respecting the limitations imposed by Europe on the groups with financial aid.

The greatest unknown fact will be the price policy which will be applied by the bad bank. Sareb did not disclose any information yesterday on the average discounts which will be applied to sales. It explained that each asset has its own sale strategy, always searching for the maximum profit.

Source: Expansión

Spain walks in the right direction in the restructuring of its banking system, but it may not declare victory yet. This can be applied to the bad bank, as it is progressing but needs to revise its business plan in depth. The European Commission, the ECB, the rescue fund Mede and the European Banking Authority believe so. They all presented the second revision of the financial aid awarded to Spain by the Eurogroup. The IMF, independent consultant in this process, also shares this opinion.

The European authorities bless the steps taken to create the bad bank. “The Spanish authorities had to comply with a very demanding calendar and have succeeded in the design, the implementation and the methods of Sareb in time”, according to the statement issued yesterday. Also, the bad bank “has received the first and biggest transfer of assets from the nationalized institutions, such as Bankia, NCG Banco, Catalunya Banc and Banco de Valencia. These groups transferred around 89000 flats and 13 million square meters of land.

The IMF also highlights the “solid service agreements with the participating banks in order to manage the transferred assets.” Bankia has already started selling properties from Sareb.

Apart from this, it is vital “to establish political priorities” in order to fight all unresolved challenges, “such as completing a business plan which needs to be improved”, the Fund adds.

Brussels and Frankfurt establish that Sareb will only be successful if it is based on a “solid” and “up to date” business plan. It is therefore “highly important that the plan remains robust and believable based on the more up to date information”.

The institution presided over by Belen Romana has already started this process and has hired KPMG, who will redesign the business plan in two months, as advanced by Expansion. The first one was drafted by Frob, before the arrival of Romana and with the assessment of Alvarez & Marsal. Romana believes it needs to adapt to the real estate market reality and that it is necessary to prepare packages of assets to be commercialized among investors.

Europe and the IMF agree and stress that the updating is necessary as the previous plan was prepared with the figures included in the balance sheets of banks on the 31st December 2011. The information on the value of those assets and its current state is much more precise right now. Anyhow, the international institutions believe that the timeframe planning is one of the weaknesses of Sareb.

The revision of the EU and the IMF identifies other pending issues, such as the reform of the banking supervision and the savings banks regulation. The Fund urges the Bank of Spain to establish “specific calendars” which detail the proposal to make the supervision stricter.

The institution lead by Christine Lagarde is tougher on the draft of the savings banks law, in line with the troika. All agree that it is necessary to grant incentives to the old savings banks so that they hand over the control of the banks who took on their activity. The international institutions believe that the savings banks should gradually leave the financial sector and invest in other activities to compensate risks. This would also be the only chance to expel the politicians from the financial sector.

Source: Expansión

The agency Moody´s informed yesterday that the measures included by the Government in order to reinforce the protection of the mortgaged families harms the investors in bonds guaranteed by mortgages, such as the deeds or the RMBS. This deterioration occurs because the number of assets which can be used as guarantees will be reduced (…). According to the figures of AIAF (fixed interest investment market), the current balance of deeds and liabilities is 429.939 and 203.615 million Euros, respectively.

The Government announced last Wednesday that it will limit the duration of mortgages to a maximum of 30 years. It will also limit the default interest rates, which cannot be higher than three times the legal interest of money, currently at 4%. According to Moody´s, 12,5% of the mortgages in Spain have longer expiration dates than 30 years.

In the case of foreclosures of usual residences, the Government is also contemplating the possibility of canceling the payment of a debt if the debtor pays 65% of the total amount pending during the fifth year after the award of the property after the bid, or 80% during the tenth year. Moody´s thinks that this could increase the number of debtors which “could eventually cancel their debt by handing in the keys of their home”.

This setback appears when several firms were betting on these assets. Goldman Sachs, for example, saw great value in the Spanish securitizations. On the other hand those deeds issued by different firms have experienced a rally of 40% in six months.

Source: Expansión

The provisions, a financial cushion deducted from the possible profit in order to restructure the real estate risk, have affected the results of Spanish banks in 2012.

This Friday, three institutions have shown how these resources have affected their balance sheets. Banco Popular has suffered the most, with losses of 2461 million Euros after injecting 9600 million Euros.

The institution presided over by Angel Ron, who this week appointed his number two, declared that without these provisions, the profit would have been of 520 million Euros.

With this restructuring process, the institution, which recorded a generic provision of 3679 million Euros, has increased the ratio of global hedge of defaulters up to 65%, while the ratio of hedge for troubled loans reaches 74%.

“Popular has shown once again its capacity of anticipation, becoming the new reference in the financial sector in establishing provisions on its less profitable assets, with a coverage of the total risk of 16%, one of the highest in Europe”, the institution declared. Plus, the coverage for non real estate small companies reaches 15%.

In reference to margins, all of them grew more than 24%. The interest one, which registers the income resulting of the strictly banking activity, grew more than 30% reaching 2719 million Euros, based mainly on the evolution of the investment in asset margins and the containment of the customer resources costs.

Commissions increased by 15,8%, favoring the growth of the gross margin by 26,1%, up to 3778 million Euros, while the operating margin grew by 24%, reaching 2016 million Euros.

The default of the group reached 8,98% in 2012, opposite to the 5,99% of the previous year, although the coverage improved to 73,65% opposite to the 55,75% in 2011.

The second Spanish banking group, BBVA, has announced that it obtained a net profit of 1676 million Euros in 2012, 44,2% less than the 3004 million Euros earned in 2011, after carrying out “all provisions in the real estate sector in Spain”.

The institution explains that without taking into account those charges nor the “positive impact” generated by the acquisition of Unnim, the profit would have been of 4406 million Euros, 2,2% less than in 2011, according to a statement made to the National Share Market Commission.

The institution presided over by Francisco González closed 2012 with a default rate of 5,1%, one percentage point over the 4% of 2011, opposite to the average 6% of its competitors. If we only take the business in Spain into consideration, the default rate reaches 6,9%.

The president of BBVA, Francisco Gonzalez, has pointed out that these results confirm the “strength” of the institution after its diversification and its management model in a very complex year. “We have solved the difficulties, offering positive results quarter after quarter”, he declared.

In Spain, the area result was negative (-1267 million Euros) after absorbing the restructuring processes related to the deterioration of the real estate assets. Without taking into account these processes, Spain earned 1211 million Euros.

Caixabank has presented a profit of 230 million Euros, 78,2% less than in 2011, after assigning 10299 million Euros to provisions to restructure the real estate risk, multiplying by four the previous year´s assignments.

After completing the merger through absorption of Banca Cívica and signing an agreement to acquire Banco de Valencia, CaixaBank has become in 2012 the leading institution in the Spanish market, with assets worth 349.294 million Euros, 29% more and a business volume of 512.017 million Euros, nearly 20% more than in 2011.

The default rate of the bank has reached 8,62%, opposite to the 4,9% in 2011, maintaining the coverage ratio at 60%.

At the end of January 2013, Caixabank used 9000 million Euros from its liquidity surplus to reduce its dependence from the ECB. 4500 million Euros were destined to return part of the funds requested by the institution in the long term liquidity bids, and another 4500 million Euros to provide the financing of the Banco de Valencia, so as to reduce its appeal to the ECB. The amount from the ECB has therefore been reduced by more than 25%, up to 24780 million Euros. The institution has announced that for the sixth year in a row, it will continue to maintain its budget of 500 million Euros for social programs.

The biggest banking group in Spain, Banco Santander, presented its results on Thursday showing a net profit of 2205 million Euros in 2012, 58,8% less than the previous year, due to the provision of 18800 million Euros.

Had it not been for these provisions, the profit before taxes would have grown 2% in 2012 reaching 23559 million Euros.

Its subsidiary Banesto, now in an integration process, had losses of 955 million Euros after carrying out provisions for 2343 million Euros.

Source: El Mundo