19 October 2015 – Expansión
The President accepts that the entity’s initial calculations were too optimistic.
Not only do Sareb‘s managers have to review the appraisal values of half of their assets in record time before the end of the year, they also need to update the company’s business plan, which has been affected by the recent publication of the new accounting circular. The exact impact is not known yet but all indications show that the forecast cumulative annual yield of c.14% has been made obsolete and impossible to achieve. The first provisional calculations clearly indicate that the yield is in the single digits.
Sareb must revalue half of its assets before the endof the year year and revalue the other half during 2016, in accordance with the accounting circular drafted by the Bank of Spain, which came into force just a few weeks ago. This means that (since any losses that arise from valuations that are lower than the look value cannot be offset by latent profits already recorded) provisions will have to be recognised, which will cause the company to recognise significant losses, which will result in the virtual disappearance of the scarce capital available to the bank bad, given that it also recorded losses in the last two years amounting to almost €900 million.
The thing is, not only will it have to capitalise part of the subordinated debt that the shareholders issued to restore the balance sheet, it is also going to have to review the company’s business plan, once again, and adapt it to the new situation. And according to the early drafts, it seems like they are going to finally acknowledge that the figures that were initially approved bear little resemblance to the current reality.
“From the beginning we thought that the money that we were investing in Sareb was not going to yield a profit and that, at best, we would perhaps recover the initial outlay”, said one of the main private shareholders in the company recently. The initial business plan, which was verified by KPMG, forecast an annual return on capital of 15% throughout the 15-year life of the company. Subsequently, that figure was reduced to 14% and after the first year, when Belén Romana was still President, the objective was reviewed again – sources said that the yield would fall below 14%, but they did not specify by how much.
Change of scenery
Sareb now has a different President, Jaime Echegoyen, and a different set of accounting obligations that are significantly pushing back the time when the company will generate positive returns. But based on the preliminary calculations, the yield will be well below its initial double-digit forecast (…).
The new accounting circular has been accepted by Sareb without any public criticism, although according to sources close to the company’s Board, the discussions behind the scenes between the managers of Sareb and the Bank of Spain have been heated. One of the major clashes relates to the fact that the supervisor applies banking accounting criteria to the entity, when in reality according to the sources, the company is really just a large real estate company. (…).
The other main discrepancy centres around the imposition of the requirement to perform new appraisals of certain assets… “The initial lack of control was such that the same assets coming from different entities…were transferred to Sareb with different values”. (…).
Original story: Expansión (by Salvador Arancibia)
Translation: Carmel Drake