10 February 2015 – El Economista
In 2014, Santander’s real estate stock decreased by 1.8% and BBVA’s dropped by almost 5%.
Banco Santander and BBVA are beginning to shed some real estate weight. For the first time, the economic recovery has allowed the two large banks to reduce their portfolios of homes and land foreclosed from developers and individuals for the non-payment of debt.
The two largest financial groups in the country have managed to halt the entry of property onto their balance sheets and accelerate its exit, thanks to a boost in sales. Thus, the Cantabrian group has decreased the gross value of its real estate portfolio by 1.8% to €7,851 million. After accounting for provisions, which reflect current market prices, this value decreases to just over €3,500 million.
Meanwhile, the bank chaired by Francisco González has reduced its stock by 4.9% to €13,016 million. After applying the appropriate provisions, the value of its real estate portfolio amounts to €6,131 million.
Boost in sales
This decline in the assets of the two main entities has occurred at a time of stability in terms of prices, which seem to have bottomed out having decreased by 40% in the last seven years. This, coupled with the high provisions, which cover between 53% and 55% of the gross value of the assets, has allowed both entities to sell assets, above all, during the second half of last year, without incurring any additional losses.
The increase in the sale of properties and, even some land, also coincides with the war in the mortgage segment that was unleashed in 2014. The entities have launched campaigns to offer loans at the most attractive prices to enable borrowers to purchase homes, including from their own portfolios.
Santander and BBVA’s real estate strategies are different, but both are now starting to bear fruit, after years of burgeoning portfolios of foreclosed assets as developers and families found it impossible to pay their debts.
Santander, like many other Spanish banks, has transferred the management of these assets to Apollo. The Cantabrian group sold 85% of its real estate platform Altamira to the fund, and whereby achieved significant gains with which to strengthen its capital and transfer the management of the entire stock to a specialist company, which has also just been awarded the management of a portfolio by the bad bank or Sareb for the next few years.
BBVA’s plan is different. The entity, headquartered in Bilbao, has preferred to keep the management of all of its unproductive assets in-house, through its subsidiary Anida.
Although prices have now stabilised and the banks are now making some money on the majority of sales transactions after accounting for provisions, the real estate arms of both banks are still weighing down on their income statements. These divisions include not only foreclosed homes, but also loans granted to companies relating to the real estate sector. In the case of Santander, the real estate department recorded losses of almost €600 million in 2014, 8.2% less than in 2013. BBVA recorded losses of almost €800 million.
Both banks hope that these divisions will begin to generate some kind of positive yield within two years and they expect their respective stock balances to have disappeared or been reduced to an absolute minimum within five years. The decreases were more pronounced (in the double digits) in the case of loans to developers than properties due to the divestments performed in the wholesale market.
Original story: El Economista (by F. Tadeo)
Translation: Carmel Drake