25 May 2015 – Cinco Días
Entities overcharged or transferred inadequate assets to the ‘bad bank’.Catalunya Banc pays the highest compensation, 318 million, a third of the total.
At the start of 2013, the six banks that had received public support transferred almost 50.5 billion euros in toxic assets, including loans and real estate, to the newly formed asset management company from bank restructuring, Sareb.
During such a large-scale operation, however, banks made some mistakes in their packages including property or credits, which Sareb should not have withdrawn in addition to improperly appraising assets they sold to the organization. The detection of these irregularities in the analysis by Sareb has forced banks to return to it, for the moment, 911 million euros.
Reasons for compensation
The three major causes of corrections:
Inadequate assets: Sareb should have only taken on credits from the real estate developers of over 250,000 euros and buildings worth more than 100,000 euros.
Poorly cataloged: Some assets were appraised and valued as finished works when they were actually under construction.
Change in scope: The portfolios ranged from their valuation to their sale.
This is stated in the annual report published by Sareb 2014, which reveals that the greatest compensation to be paid on a transferred package was that of Banc de Catalunya which has compensated the ‘bad bank’ with 318 million euros, over a third of total payments made by the receiving entities. It is important to take into account that Banc de Catalunya had also transferred one of the highest volumes of assets to Sareb – over 6.5 billion.
However, Bankia, which led the transfers with a load of around 22.1 billion has only had to offset 127 million so far. It was exceeded by Novagalicia in terms of compensation, which transferred 5.67 billion and has returned 182.7 million, in addition to 12.86 more by Banco Gallego and Banco de Valencia, which fell from approximately 1.9 billion and compensated 161.6 million.
Finally, Ceiss, which transferred 3.14 billion, has paid 55.76 million and BMN, which transferred about 5.8 billion has returned 27.59 million. Only Box3, which gave Sareb around 2.2 billion and Liberbank Sareb, with about 2.9 billion, have not had to pay Sareb anything for the moment for irregularities in the process.
In total, the seven affected entities have had to pay Sareb 885.9 million euros. As the ‘bad bank’ paid them for their toxic assets with bonds guaranteed by public debt, such compensation have been settled mostly by returning Sareb 883.4 million euros of these issues.
As bonds have a rounded-off value that does not match the detected specific variations, the difference has been dealt with by paying an additional 2.48 million euros in cash. Finally, as the bonds issued by Sareb carried an associated coupon, banks have had to repay the company an additional 25.37 million. The total bill amounts to 911.25 million.
These corrections, explained Sareb, are mainly due to three factors. Firstly, the asset was the mortgage of a private owner, consumer credit, an apartment of less than 100,000 euros or a loan for less than 250,000 euros, which should not have been transferred to Sareb and have been returned to the entity.
Secondly, some properties was wrongly catalogued and this forces adjusting the price that was paid for it, as was the case of allegedly finished works that were unfinished or ongoing developments that were still just land plots. Another recurring motif is that the scope and valuation of each portfolio to sell was made 15 days prior to its effective handover – a period that could vary because certain properties have been sold or parts of loans have been amortized, without the price having been amended.
More changes may be required until February
When Sareb received over 39 billion euros in loans to developers and over 11 billion in foreclosed properties from financial institutions, aided with public money, it set out to review the portfolios and correct any mistakes within 36 months. Although by now the financial institutions have already paid more than 911 million euros to Sareb in the process, the analysis of the various portfolios goes on and the ‘bad bank’ could require new compensations from those in the so-called Group 1 (Bankia, Novagalicia, Catalunya Banc and Banco de Valencia) until 31 December and until late February next year from Group 2 (BMN, Ceiss, Liberbank and Caja3), when three years of the respective transfers will have passed.
Nevertheless, the bulk of the corrections have already been carried out. In fact, to facilitate the sales processes of Ceiss Unicaja, Banco de Valencia to CaixaBank, Novagalicia to Banesco group (which now operates under the name of Abanca), and of Catalunya Banc to BBVA, where potential buyers required closing these deals to avoid future surprises, Sareb already reached a special compensation agreement with these entities. They will immediately pay the price variations detected in its analysis in exchange for having Sareb not make any further claims. The company, though, is still entitled to return the assets that been inappropriately transferred.
Original story: Cinco Días (by J. Portillo)
Translation: James Leahu