ECB Rejects Property Appraisal by Oliver Wyman & Demands a New One

14/03/2014 – El Confidencial

The Bank of Spain´s setback because the ECB that claims “the real estate owned assets´valuation based on the stress tests of Oliver Wyman – used for determination of the bail-out amount and property transfer to Sareb – in 2012 were not reliable. In the AQR examination and the afterward stress tests a necessity of reassession of guarantees (…) and this, together with collective provision are the most fearful aspects for the new fiscal year for Spanish banks.

(…) In 2012, 1.7 million property appraisals have been prepared (concerning both awarded and collateral assets) by six valuators and now their work turned out to be an old hat.

This is not the first time the European authorities dispute appraisals drawn for Spanish banking aid. Thus, the Commission has objected to prices of assets transferred to Sareb – based on the Wyman´s tests – claiming that they were above the real prices on the market (for instance, it insisted that real discount for flats shall be of 75%). As a result, (…) the amount rises from €61.000 million intended for Spain to €100.000 million.

Now, the auditing companies named to conduct the revision (“the Big Four”, Deloitte excluded) cannot valuate the real estate guarantees so they are awaiting a decision who will take the appraisal over. (…).

The real estate setback joins another threat cast upon Spanish financial sector in the forthcoming years: the so-called “collective provisions”. It derives from the fact that at the Asset Quality Revision the banks´corporative credits will be taken as a whole, while the detail ones (mortgages, consumer loans) picked randomly and the results will have an impact on entire portfolio. (…). The provisions will be an input for the stress test calculations.

But the most important role the provisions play is to determine if the expected losses turn out ot be higher and so the needs of a bank to face them (…).

Finally, not all portfolios under revision will be of the same type for each entity but different and specified by the Bank of Spain. In any case, the minimum tax for Frankfurt for the test is 50% of the weighted assets. Also, one shall not forget about the penalization of public debt portfolios. On Monday, the ECB will meet the auditing companies to explain them the revision methodology.


Original article: El Confidencial (Eduardo Segovia)

Translation: AURA REE