Sareb Says Good-Bye to 2014 & 2015 Profits Due to Provisions Imposed by the Bank of Spain

28/05/2014 – El Confidencial

The obligation to cover the asset impairment imposed by the Bank of Spain and which has taken Sareb aback will have devastating effects on the bad bank´s annual results. Even though its business plan is still being revised, saying good-bye to profits forecasted for 2014 and 2015 seems inevitable. Some sources from the market estimate Sareb will bear the cost of between €200-300 million only this year.

As a consequence, the promised return of 14% set for the 15 years of the bad bank´s lifespan will drastically fall down even to meagre 2%.

Briefly, the blueprint regulation issued by the Bank of Spain forces Sareb to re-appraise its assets and give provisions to those which lost their value.

The bad bank´s business plan foresaw profits of  €63 million this year. If all estimations (sales, prices, etc.) come true, it will lose between €140 and 240 million. For the next year, the profit was expected to hit €140 million. Unfortunately, now, the re-appraisals staggered for over 3 years will affect the results of 2015 as well.

“They hope to tie-up the loss in 2016 and from then on, start welcoming profits again”, says an expert from the market. In 2016, the profits were supposed to mark €198 million. It is worth to mention that in 2013 a smiliar situation occured, when Sareb had to valuate its loan portfolio from the scratch and thereby lost €261 million, much more than the €47 million included in the plan.

The sudden delay of benefit puts the 13% annual percentage rate (13,98% in the most optimistic scenario) out of reach. Sources from the sector agree the reduction will hurt the bad bank, dipping down 2% – 4%.

No one dreads, however, that Sareb will run out of the equity, except for a PSOE politician, Valeriano Gomez who is afraid the new reform will “require more public money pumped into the bad bank”.

Sareb itself feels offended: “it looks like changing the rules in the middle of the game. The Bank of Spain fixed the transfer prices, not us, and now it claims they were wrong and we have to cover the impariment”.

Authorities defend themselves by assuring the regulation is the only way of making the annual results of Sareb feasible, especially out of Spain. “You cannot maintain the value of your assets remains the same over 15 years, you should revise them from time to time and cover all emerging deterioration”.


Original article: El Confidencial (by Eduardo Segovia)

Translation: AURA REE