14 January 2016 – Expansión
Sareb’s sale of assets to large investors slowed during the second half of 2015. The company, which owns the majority of the problem assets that were formerly held by the rescued entities, transferred just €520 million worth of assets to institutional investors in 2015, which represents a quarter of the amount (€2,200 million) it had put on the market in portfolios (prior to the new accounting circular).
The reason for this slow down was the introduction of new accounting requirements, designed by the Bank of Spain, which entered into force last year. These regulations penalise Sareb’s previous business model, which sought to increase revenues during the last few months of each year through the sale of portfolios to large investors. From now on, the company will not transfer large loan packages, but instead will sell its loans one by one in large competitive processes.
Putting the brakes on
This paradigm shift will be felt in the bad bank’s annual results. In 2013, the first full year of activity for the company led by Jaime Echegoyen (pictured above), Sareb generated revenues of €1,166 million through the wholesale channel – €757 million from portfolio sales and €409 million from the sale of individual positions-. One year later, that volume remained stable, with sales of €1,115 million, of which €708 million were closed in December. In 2015, the figure has been reduced to almost half, just over €600 million in total, given that the entity made sales of €90 million during the first half of the year and €520 million during the second half.
This slow down has two effects: one positive and one negative. The good news is that Sareb will preserve its margin on the deals it makes with large investors. That is because it used to obtain lower prices on its portfolio sales than on its sales through the retail channel, and so, in this way, margin was sacrificed at the expense of volume.
The bad news is that annual revenues will be lower than initially expected. Sareb is under pressure to liquidate all of its assets before the end of 2027. At the end of the first half of 2015, it still had €43,381 million assets left on its books, having reduced the initial asset balance transferred to it from Spain’s rescued entities (€50,781 million) by just €7,400 million.
Its inability to sell large portfolios is due to the fact that the accounting circular designed by the regulator obliges Sareb to perform an individual appraisal of all of its assets, within two years. This environment damages portfolios sales, because instead of being able to assign a global price for each portfolio, it will now be forced to set a specific price for each property or loan, reducing its margin.
Sources at some of the international funds indicate that they had expected the volume of sales through the wholesale channel to be lower than the actual figure obtained (€520 million). They point out that Sareb only had a few weeks to adapt its strategy and sell the loans included in five portfolios that it had already put up for sale, amounting to €2,200 million, on a loan by loan basis. All of the sales made through the wholesale channel (€520 million) involved loans and the majority were secured by land or residential assets.
A difficult year
The slowdown in wholesale sales has come at a difficult time for the entity. Its revenues from the retail channel also slowed in 2015, due to the transfer of assets to the new managers –Haya RE, Altamira, Solvia and Servihabitat–. In addition, the company is going to have to recognise significant provisions and the corresponding charges in the 2015 accounts to reflect the new accounting circular. All of this means that the entity will have to consume more of its share capital and some of its subordinated debt.
Thankfully, the company is making savings in terms of its financing costs – its debt is becoming cheaper – which should enable it to partly offset that blow.
Original story: Expansión (by J. Zuloaga)
Translation: Carmel Drake