Sareb Succumbs to REO Property Re-Appraisal & Three-Year Provisions

17/10/2014 – El Economista

The bad bank of Spain, known as Sareb by the abbreviation of its name in Spanish, gets ready to repeat appraisals of its entire repossessed asset portfolio consisting of more than 400.000 (mostly collateral) properties. The firm has got a bit more than a two-year deadline to provide the results to the Bank of Spain.

Sareb shall not only value the units received from the nine bailed-out banks and savings banks one by one, but also provision them in case when their current value is lower than at the moment of transfer.

The toxic assets of Bankia, Catalunya Caixa, Novagalicia, Banco de Valencia y Gallego, Ceiss, BMN, Liberbank and Caja3 were transferred to Sareb in bulk in order to set the operating ball of the bad bank rolling as fast as possible.

The central entity of Spain obliged the bad bank to re-appraise its entire portfolio as follows: 30% of the total it in 2014, reaching 60% at the end of 2015, and the rest of the real estate volume by the end of 2016.

Resigned Sareb decided leastwise to gain some time. However, it also braces for the worst and considers making some provisions like it did in 2013.

That decision cost the bad bank €259 million and dragged its final result to €261 million in the red, while it hoped for some gains. Sareb’s Ebitda for the first half of 2014 showed €429 million, by 23% more than last year and merely a half of what it earned in the second half of 2013 (€847 million).

Sources from Sareb warn about comparisons made between the periods as the beginning of last year was much poorer than the other half of it in terms of sales.

Apart from the legal obligation, the bad bank will have to name the winners of the bidding for its asset management called the ‘Project Ibero‘. Servicers like Altamira (owned by Apollo and Banco Santander), Aktua (Centerbridge), Servihabitat (CaixaBank and TPG), Solvia (Sabadell), Abanca and Haya Real Estate (Cerberus and Blackstone) wish for being given one of the 5- to 7- year, lucrative contracts.

Sareb asks for a deposit from the funds which will be paid off or given out depending on the asset sales. The €1 billion amount will neither be accounted as the revenues nor be included in the results, not even employed to patch the provision – damaged capital. In 2013, the bad bank paid almost €200 million to the REO property’s banking managers in shape of commissions.

Sales to Private Investors

Recently observed housing sales reactivation enhances the activity of Sareb. The firm sold 10.800 dwellings to individual buyers year-to-date, and conveyed more than 10.000 units, meeting the 2014 target 93%.

The principal source of income for the bad bank is loan administration as this type of asset represents 80% of its entire REO scope. In the first half of 2014, the firm earned almost €1.7 billion, with this service accounting for 74% of the total.


Original article: El Economista (by E. Contreras)

Translation: AURA REE