Sareb Continues To Review Its Asset Transfer Prices

12 March 2015 – Expansión

‘Sareb got married in a rush, without preparing a gift list, and after the ceremony it began to realise what the gift boxes it had come home with actually contained’. Shortly after the creation of the bad bank, one of its senior executives used this metaphor to explain the need to review the assets that the entity had received from the former savings banks.

In order to meet the deadlines set by Brussels for the financial bailout, Bankia, Novagalicia, Catalunya Banc, Banco de Valencia, Banco Gallego, Banco Mare Nostrum, Liberbank, Cajatres and Ceiss transferred a huge volume of properties and developer loans (to Sareb) in a mad rush.

On the basis of valuation reports performed by independent experts, the Bank of Spain set the price that Sareb paid for the assets: €50,781 million in total, in bonds guaranteed by the State. But Sareb reserved the right to review these transfer prices, in an operation known as the “correction of hidden flaws”, to make up for errors in both valuation and scope (perimeter) – assets that did not fall within the perimeter in the end and assets that should not have fallen inside the perimeter – and to make a claim for the difference.

One of the peculiarities of the transfer review mechanism is that the bad bank only allows for corrections in its favour. After reporting the errors detected to the former savings banks and evaluating the claims, Sareb corrects the differences by repaying the bonds it used to pay for them.

To date, the bad bank has already recovered €640 million of the amount it paid to the entities in relation to both valuation and scope (perimeter) errors. The entity most affected to date has been Catalunya Banc, with €318 million (of corrections), followed by Novagalicia (€182 million) and Bankia (€127 million).

But this total amount is expected to rise, because the company chaired by Jaime Echegoyen has reserved its right to review prices for up to 36 months, a period that will expire at the end of 2015 for the entities classified in Group 1 (Bankia, Novagalicia, Catalunya Banc and Banco Valencia) and in February 2016 for the entities in Group 2 (BMN, Liberbank, Ceiss and Cajatres).

Nevertheless, Sareb does not expect to work up until the deadlines in every case. It has already closed an agreement to finalise the review of the price paid for the assets transferred from Novagalicia, Catalunya Banc, Banco de Valencia and Ceiss. Now its investigation will focus on the properties and loans transferred from Bankia, Liberbank, and BMN; it still needs to sign an agreement to finalise the review with Banco Gallego or Cajatres.

Moreover, Sareb reserves the right to review for scope errors until the end of the remaining life of the (corresponding) asset(s), for those assets it paid for but which were never transferred or those that were transferred when they should not have been, such as any consumer loans.

The experts at the asset management company are basing their detailed analysis on the audit that was conducted by a consortium of thirteen companies, coordinated by the law firm Clifford Chance, but they will go into more detail for certain samples.

Original story: Expansión (by Alicia Crespo)

Translation: Carmel Drake

Top 6 Banks Lose €15,300M From Real Estate In 4 Years

10 March 2015 – El Economista

The real estate sector continues to be a major problem for financial institutions despite the economic recovery. The largest 6 banks lost another €3,027 million last year from their main property development companies, which together hold the bulk of the foreclosed assets, due to unpaid loans.

Following the results reported in 2014, Banco Santander, BBVA, CaixaBank, Sabadell, Popular and Bankinter have now suffered losses of more than €15,300 million in the last four years from their real estate arms.

Nevertheless, the rate of loss is shrinking due to the stabilisation of (house) prices, which have decreased by 40% on average, and the increased sales of homes and, even land. This is in addition to the provisions that have already been made, primarily in 2012, when the Government forced financial institutions to increase their coverage ratios substantially in the face of doubts in the market over the real status of the system’s balance sheet.

Thus, the deficit reported by these companies decreased by 36% with respect to 2013 and by 45% with respect to 2012, but it continues to be 43% higher than in 2011.

The real estate arm of CaixaBank, BuildingCenter, recorded the greatest losses in 2014, according to data published by the entities. Specifically, it generated a loss of €1,280 million. The Catalan group had to clean up its balance sheet by €1,900 million in the middle of last year, through a capital injection to adjust its balance sheet. Its losses have amounted to €3,000 million in the last two years.

Diminishing impact

Indeed, the Catalan group is the least optimistic about the property situation in our country. At the end of January, its CEO, Gonzalo Gortázar, predicted that the accounts of the real estate company “would continue to be significantly impacted” this year and next. Although, he did point out that the impact should diminish.

Canvives, owned by Popular, was the property developer that recorded the smallest losses: €52 million. The company, which used to be owned by Pastor, was merged into the group chaired by Ángel Ron. The deficit of this subsidiary has decreased by 91% in two years after the clean up. Popular holds another large real estate company in its portfolio, Aliseda, which generated additional losses of €146 million last year.

According to its management tem, Popular managed to sell property at a price slightly higher than its book value, after applying provisions, and it doubled its turnover (from this activity), to generate €1,500 million.

The bank, chaired by Ángel Ron, expects to increase the sale of property by 33% this year, as it gradually reduces this type of asset. It was the last entity to launch an aggressive price policy and it is intensifying (its efforts) to reduce the volume of homes and land it holds.

Santander’s property developer generated the some of the smallest losses last year. Just €119 million. This company’s deficit over the last four years amounts to €1,788 million in total.

Santander, like Popular and CaixaBank, is supported by funds, which strengthen the sale of their properties. The three banks have got rid of the majority of the capital (they held) in the platforms they use to manage this type of asset, with the objective of outsourcing the service and achieving gains with which to shore up their capital resources.

The strategy followed by BBVA, Sabadell and Bankinter is somewhat different; they have retained the overall management of their foreclosed properties, although in the case of the first two, the option of finding a specialist industrial partner has not been ruled out. Under no circumstances do these entities expect to partner up with any funds.

The volume of foreclosed assets increases

Although the volume of sales has accelerated, the balance of foreclosed assets is continuing to increase; although if we exclude the stakes held in property-related companies, this balance decreases for the first time since the crisis. In this sense, last year, Santander and BBVA succeeded in reducing the volume of homes and land in their portfolios. The former reduced its balance by 1.8%, to €7,851 million gross (excluding provisions), whilst the latter decreased it by 5%, to reach €13,016 million.

The six listed banks, excluding Bankia, which transferred the majority of its properties to Sareb during the financial bailout, together held foreclosed assets amounting to €70,000 million at the end of 2014, including the stakes they owned in property development companies. This means that the balance had increased by 9% with respect to 2013.

The forecasts made by the entities themselves indicate that all of this stock will have been liquidated within five or six years. Santander, for example, expects to decrease its balance by 20% each year, which means that it may have got rid of the entire volume of homes and land in its portfolio within five years. However, this will all depend on the economic conditions in our country and the recovery of the property sector, which is starting to see the light at the end of the tunnel.

Original story: El Economista (by Fernando Tadeo)

Translation: Carmel Drake