The Frob is analyzing the scheme of shares held in developing companies by those banks with public aid in order to agree their transfer to Sareb, the bad bank. The eight groups which have received state aid (BFA-Bankia, NCG, Catalunya Banc, Banco de Valencia, BMN, Liberbank, Caja España Duero and Caja 3) sold in December and January nearly 50.500 million Euros in credits to developers and awarded properties to Sareb. However, the third real estate risk focal point still remains in their balances: their developing subsidiaries, more than 400. Among them, their shares in listed companies such as Metrovacesa and Realia.
The Frob is revising the features of the different real estate subsidiaries in order to decide which shares comply with the requirements to be acquired by Sareb. The institution presided over by Antonio Carrascosa is analyzing different criteria, among them, if the affiliated developing company has a high number of properties with a net value in books over 100.000 Euros in its balance or if the participation of the bank in the subsidiary is an effective channel for the institution to carry out its building and real estate developing activity in Spain.
Once the number of assets to be transferred has been established, the Bank of Spain will set the transfer price of the shares, as already done last year, when credits and properties were transferred. The reference will be the net value in books of the real estate subsidiaries.
Although the process is still in the stage of analysis, several sources within the market declare that the transfer would take place around the summer. Those same sources also point out that the volume of assets that would be transferred to Sareb would not oblige the company to extend its capital in order to maintain an adequate solvency rate. That is, Frob, that controls 45% of the bad bank, and the private shareholders (nearly 30 banks and insurance companies) would not need to do more payments.
Sareb has currently 50.449 million Euros in assets in its balance. The shareholders fund reaches 4800 million Euros, and therefore the capital rate is 9,5%. The Frob has declared in the last few months that Sareb can operate with levels of 8% of own funds, which are considered conservative and prudent. With this reference, the bad bank would have a financial cushion of one and a half points of solvency, equivalent to 800 million Euros. It could increase its balance in another 10.000 million Euros (up to 60.000 million Euros), maintaining a solvency of 8%.
The existing financial cushion, as well as the nature of Sareb, a company which is being liquidated, will avoid a new need of capital, not only now but during its fifteen years of life, according to the mentioned sources. The balance of Sareb will be reduced once the assets start to be sold. This means that with the same volume of own funds, the solvency rate will gradually increase until 2027, as long as the losses do not boost and the forecasts on gains are fulfilled.
This dynamic will be a key point in order to comply with the profit target of the bad bank, between 13% and 14% annually, according to the revised business plan approved by the board in March. Once credits, properties and affiliated companies start being liquidated, Sareb will have less financial expenses and more money available to remunerate its capital.