11/08/2014 – El Economista
In only two years the bank has had to invest almost 4,000 million euros in Building Center. The bank is increasing sales of homes and land by around 10% following the alliance with the investment fund TPG.
Caixabank has recently injected 1.900 million euros into its real estate subsidiary with the aim of stabilising the balance of its equity. Last June it invested this amount into Building Center, a company which manages homes and land reclaimed due to payment defaults by its customers.
With this transaction, the Catalan bank once again stabilises the balance sheet of this franchise, increasing its share capital in the face of its increasing activity and its losses suffered as a result of increases in provisions and increasing sales at losses. Equally, it is balancing the level of financing from debt compared with equity.
It is not the first time that Caixabank has had to go to the rescue of Building Center. It already injected 2.000 million euros last year. But neither is it the only bank to have to carry out this type of transaction on a recurring basis.
Last year, in separate transactions the five banking groups (Santander, BBVA, Sabadell, Popular and Caixabank itself) paid out almost 9.000 million to their real estate companies. Including Caixabank’s transaction just over a month ago, the amount goes up to some 11.000 million.
At the close of 2013, Building Center had a total equity of closeto 3.500 million euros, but suffered losses of 1.800 million. During the first half of this year, its activity has continued to produce a hole in its finances. According to the financial statements of the group, its real estate operations, which also include loans to property developers, led to results of €468 million in the red, primarily due to adjustments to write down the value of properties and also debts due to insolvency.
Expansion of its portfolio
In the first six months of the year, the subsidiary of Caixabank incorporated as a real estate company has increased the volume of its properties to 14.445 million euros before provisions, primarily due to the incorporation of new plots of land into its portfolio. In December, the value of entity’s foreclosed assets was around 13.284 million.
The firm adjusted the value of these properties with provisions of 7.700 million in order to anticipate losses and in order to be able to do away with them more quickly, incurring the minimum losses possible. The level of provisions against the Catalan bank’s portfolio amounts to 53 per cent, meaning it can offer discounts of up to that amount on the sale price without suffering further losses.
The La Caixagroup also has another real estate business, Servihabitat, which is a subsidiary of the holding company Criteria and which, up until the incorporation of Caixabank in 2011 and subsequently that of Building Center, encompassed all of the properties which it received in exchange for defaults on loans.
As a result, the total volume of the real estate portfolio of La Caixa is €18.500 million, with provisions of 55 per cent, according to data included in its half year report.
With the aim of expediting sales and improving the management of foreclosed properties, as well as generating profits, La Caixa reached an agreement with the investment fund TPG at the end of last year for it to take over its property platform. The fund took over 51 per cent of Servihabitat and receives commissions for divestments and management of the whole portfolio of the group presided by Isidro Fainé, including Building Center.
This alliance and the reawakening of the sector in recent months have led Building Center to increase the number of transactions between December 2013 and June 2014. It has sold and leased more than half of last year’s total. It has surpassed 11.456 properties, compared with 18.386 in the whole of last year.
Sales of 1,200 million
These transactions have provided the bank with revenues of 1.213 million euros, an increase of 10 per cent on the inter-annual rate. In 2013 income reached €2.180 million.
Caixabank admits that sales, specifically, rose by 30 per cent, but that they continue to generate losses. In other words, the sales are made with discounts greater than the level of the provisions.
This situation is the prevailing trend across the sector, which sees no choice but to keep lowering prices in order to expedite sales and do away with the property burden. In some cases, the discounts reach 80 per cent, mainly in peripheral areas or those which are less desirable. Plots of land are also reaching or exceeding this fall in price, although the banks have also set up various projects to develop land which can be built on, in order to raise their value and sell them with greater profits in the future.
Sales of homes and land by the five largest banks, among which is Caixabank, have increased to 35.000 properties. These transactions have meant more than 4.000 million euros of revenue for the banking sector as a whole.
Original article: El Economista (by F. Tadeo)
Translation: Aura REE