The bad bank was born to find a solution to the real estate problems of the nationalized financial institutions and those who received public aid. In other words, it was created to become the biggest real estate company known until then. There is an inconvenience: behind this company there are obstacles which went unnoticed at the time and could increase the debt of the State.
It has been operative for merely four months, it only has 60 employees, a financial structure made of public and private funds – 300 million Euros in equity and up to 462 million Euros in subordinate debt – and senior bonds for 50.781 million Euros guaranteed by the State. It has a volume of real estate assets close to 51.000 million Euros and 15 years to get rid of them.
Sareb needs to face five difficult problems. First, the lack of human resources. Sources aware of the internal practices in this company warn that 3000 people specialized in the sale of real estate assets would be needed. Nevertheless, the forecast does not include more than 120 people.
Second, and as a consequence of the lack of staff, Sareb has had to subcontract consulting companies and law firms specialized in carrying out audits on each asset included in the portfolio. Around 200.000, in total, according to the figures provided by the Ministry of Economy, Luis de Guindos, last week in Congress. The hired firms will have four months to analyze all assets individually and to confirm that the assets transferred by the banks equal the current portfolio put on sale.
The third problem Sareb may face is that some of its investors – shareholders or subscribers of subordinate debt might go bankrupt. Sources aware of the operation confessed that this scenario had been considered when creating the company. The shareholders of the bad bank are mainly Spanish banks and insurance companies, as well as some foreign institutions, such as Deutsche Bank and Barclays.
Fourth, the exit of cash from the cash register of the bad bank. In other words, Sareb may have credits to developers who, by agreement, have the right to continue receiving the loan from the institution. The company will then have to renegotiate this loan or to comply with the agreement.
And fifth, the senior debt issued by Sareb to pay the banks that transferred their assets. These bonds, which are guaranteed by the State, could turn into debt from the Spanish state in case it reaches maturity and it has not been paid. These are the bonds given by Sareb to the banks in exchange for their assets, which the banks used to turn to the European Central Bank to obtain liquidity. This debt reaches in total 50.781 million Euros. The Government states that the bad bank will not count as debt from the State as it plans to honor its payments.
In spite of this scenario, sources close to the operation declared that, if the business plan is followed, the senior debt will never count as debt from the State. Sareb plans to obtain a profit of 14% in its 15 years of operation. This year it plans to sell a volume of 1500 million Euros in assets.