Santander & Popular Save Their RE Subsidiaries

14 October 2015 – Expansión

Santander and Popular have cleaned up the own funds of their respective real estate companies (Altamira and Aliseda) and whereby avoid the bankruptcy of both subsidiaries. They are the last of the major banks to save their fully-owned subsidiaries, which group together their own real estate assets.

Until now, all of the real estate companies have been enjoying more flexible treatment in terms of their compliance with the regulations that establish the share capital levels that the entities must maintain.

At the end of 2008, in the middle of the real estate crisis, the Government approved a royal decree containing financial measures to improve the liquidity of small- and medium-sized companies, along with other complementary economic measures.

This meant that the real estate companies were left out of the obligation that corporations of all shapes and sizes have to decrease their share capital when their losses reduce their net equity positions and take them below two thirds, in which case, the company must be dissolved.

The exception was initially designed for a period of two years and was extended on four occasions until the end of 2014, which means that the real estate companies must reflect their true situations at the end of 2015.

Santander and Popular were the last two major banks to resolve this situation. The process is dynamic since each year the entities must bring their own funds up to date if they have been weighed down by the results of that year.

The bank led by Ana Botín (pictured above) has opted to reduce the share capital of Altamira Santander Real Estate to re-establish the equilibrium between its capital and net equity, whereby reducing the cumulative losses as at 31 December 2014.

The real estate company designed the capitalisation of the share premium and voluntary reserves and the subsequent reduction in share capital to offset the cumulative losses recorded in 2014, which amounted to €1,845 million, according to its accounts. The operation will be completed before the end of the year through the repayment of 9.04 million Altamira shares, which will result in a reduction in share capital of €2,641 million. As a result, it will be left with share capital of €605 million.

Popular’s alternative to avoid the bankruptcy of its real estate company Aliseda involves converting ordinary loans amounting to €1,500 million into equity loans “to restore its equity balance”.

This does not mean the injection of new funds into Aliseda, but rather a transformation (of existing funds), since the equity loans are classified as own funds and therefore increase the company’s net equity. These assets are classified below common creditors for the purposes of the repayment ranking.

Popular recorded negative net equity of €892 million at the end of 2014 and cumulative losses of €1,742 million.

Other banks, including CaixaBank, BBVA and Bankia, have already carried out similar operations to re-establish their own funds.

Original story: Expansión (by Elisa del Pozo)

Translation: Carmel Drake