Santander Owns 40% Of Spain’s Toxic Assets After Popular Purchase

12 June 2017 – El Confidencial

Banco Santander’s purchase of Banco Popular has created a new real estate headache for the entity chaired by Ana Patricia Botín (pictured above). As a result of the operation, which was closed for the symbolic price of €1, the Cantabrian entity has taken on a significant “inheritance” in the form of toxic assets linked to property. Specifically, we are talking about assets worth almost €17,000 million – €10,300 million net – according to data submitted by Banco Popular to Spain’s National Securities and Exchange Commission (CNMV) at the end of 2016.

If we add that figure to the €10,700 million that Santander already held on its balance sheet, according to figures at the end of last year, then the entity’s total real estate exposure following this corporate operation amounts to €27,700 million. That volume represents almost 40% of the entire toxic asset exposure that the large listed banks recognise on their balance sheets, which, at the end of 2016, amounted to €70,000 million in total (…).

Despite the clean up of foreclosed assets undertaken in recent years – carried out through the direct sale of properties and portfolios and the signing of operations such as the transfer of homes to Testa – the financial institutions still have a significant volume of property on their balance sheets. And Popular had the largest exposure of any of the listed entities. In net terms, it held €10,305 million; a figure well above those recorded by CaixaBank (€6,876 million); Sabadell (€6,244.7 million); BBVA (€6,012 million); Santander (€4,787.2 million); Bankia (€2,251.2 million) and Bankinter (€260.2 million).

Moreover, in land alone, the gross value of its assets amounts to almost €8,000 million, half of its total exposure to real estate and, once again, the highest figure of any of the listed banks.

Nevertheless, the precise gross value of those real estate assets has been one of the aspects that has generated most uncertainty in the market and one of the main obstacles it faced when it came to closing a corporate operation, which Santander agreed to in the end. An increase in the provisions against Popular’s real estate portfolio after the reappraisal process would increase the coverage ratio of these assets, which currently stands at 38.5%, however, it would also reduce their net book value, which amounted to €10,900 million as at 31 March.

Property continues to be a major problem for the financial institutions despite the clean-up undertaken in recent years. In fact, despite all of the real estate clean-up efforts, the G-7 banks reduced their global volume of foreclosed assets by just 2.3% in 2016; and by 0.73% in the case of land. (…).

The purchase of Banco Popular leaves the (recently announced) sale of a real estate portfolio amounting to €2,000 million up in the air – at least for the time bing – Emilio Saracho was preparing the portfolio together with KPMG, with the aim of reducing the high volume of non-performing assets (…) on its balance sheet in an accelerated way. (…).

Original story: El Confidencial (by E. Sanz)

Translation: Carmel Drake