Popular’s RE Losses €992M Higher Than Expected In 2016

2 March 2017 – Expansión

Popular had to find almost €1,000 million more than it had planned in 2016, to cover over-valued loans and properties, and the impairment of its subsidiary, Targobank.

During its last capital increase, Banco Popular announced that it was going to carry out an upwards adjustment to its provisions of around €4,700 million. Nevertheless, the final figure for the definitive provisions amounted to €5,692 million, which led to a negative result (loss) of €3,485 million. The entity, which was chaired by Ángel Ron at the time, has justified the reasons for that €992 million deviation in its total provisions balance in its recently published annual report.

The largest item in terms of provisions not foreseen in the market by the former managers of Banco Popular was “non-recurring provisions for loans and properties”. In total, around €703 million had to be found, in addition to another €54 million in extra provisions to cover other portfolios of loans and properties on the bank’s balance sheet (in this case on a recurring basis).

The other major item in terms of provisions for impairment, which worsened Popular’s numbers by more than expected, related to its subsidiary, Targobank (the bank that it controls jointly with Crédit Mutuel). The significant losses incurred by the entity in 2016 (it recorded a negative result of €71 million) and its failure to comply with the business plan caused the impairment of 100% of the entity’s goodwill balance, which had amounted to €169 million.

Finally, the bank acknowledges that it also had to add another €66 million to its provision balance in 2016 (and post 100% of the corresponding entry in the income statement for the year) in relation to “pensions, restructuring costs and other items”.

In addition to the unforeseen provision-related items, Banco Popular says in its annual report that the high level of provisions recorded in 2016 is due “to a large extent” to the clean-up procedures that were carried out as a result of the new accounting circular 4/2016, issued by the Bank of Spain, known in the sector as Annex IX, which came into force last autumn.

The majority of the clean-up effort focused on the property portfolio, as well as on loans to sectors linked to real estate. According to information presented in the entity’s accounts, this adjustment translated into an impairment in the value of the real estate assets (in other words, provisions) of around €4,025 million last year. The remaining €1,666 million of the new provisions for bad debts were allocated to cover impairments in the bank’s main business. (…).

Original story: Expansión (by Nicolás M. Sarriés)

Translation: Carmel Drake

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