S&P Encourages Spain’s Banks to Divest More Property & NPLs

18 April 2019 – Ya Encontré

Spain’s banks got rid of €90 billion in foreclosed assets and doubtful loans last year, almost doubling the transaction volume recorded in 2017 (€52 billion) and setting a new annual record. But they still have a lot of homes left to sell and Standard&Poors is encouraging them to divest more of those properties, with a view to restoring their pre-crisis risk levels of 4% within two years.

According to the ratings agency, the banks still hold properties worth €80 billion, representing one of the highest stocks in Europe and accounting for 7% of the balance sheets of the domestic financial sector. In this context, S&P considers that the banks still need to get rid of another €30 billion in assets, at least, if they are to properly clean up their accounts.

The active buyside players in the market include many overseas investors and funds, such as Lone Star, TPG, Apollo, Blackstone, Bain Capital and Cerberus, which have played an important role in reducing the stock of major financial institutions, such as Santander, BBVA, CaixaBank and Banco Sabadell.

S&P is not alone in its stance. Both the European Central Bank (ECB) and the International Monetary Fund (IMF) are also urging Spain’s banks to divest the last of their property portfolios as quickly as possible to ensure financial stability ahead of the next recession.

Original story: Ya Encontré

Translation/Summary: Carmel Drake

Project Newton: Bankia Puts €450M Toxic Asset Portfolio Up for Sale

21 September 2018 – Voz Pópuli

The insatiable appetite of the opportunistic funds for Spanish property is never ending and the banks are taking advantage to reduce their exposure to real estate assets and whereby clean up their balance sheets. The latest to come to the market is Bankia, which has put a €450 million portfolio up for sale comprising primarily property developer loans, although Project Newton, as the operation has been baptised, also includes a small proportion of foreclosed assets, according to financial sources consulted by Vozpópuli.

Newton’s sale is expected to be completed this year and will be followed by two other asset portfolios that the bank plans to sell soon, according to reports from Bloomberg. The operations disclosed by the US agency include a €1,500M portfolio comprising unpaid mortgages and a €2,000M portfolio comprising foreclosed assets.

At the end of the first half of the year, the entity chaired by José Ignacio Goirigolzarri held €15.2 billion in toxic assets, after reducing its balance by €1.7 billion between the months of January and June.

Strategic plan

With the sale of the three aforementioned portfolios before the end of the year, the bank would more than exceed its annual objective in terms of asset sales, which amounts to €2.9 billion per year for the next three years. In fact, if Bankia divests all three portfolios, its real estate exposure would decrease to €11.25 billion, and so it would follow in the footsteps of the other entities that have accelerated the sale of these types of assets in the last year.

The most recent example is Santander, which on Wednesday closed the sale to Cerberus of a portfolio of properties worth around €2.79 billion with a 45% discount. The initial perimeter of the operation was €5.1 billion, but in the end, the commercial premises and land that had been included in Project Apple were left out of the final portfolio.

The entity already transferred Popular’s property last year to a joint venture with Blackstone, and so its real estate exposure will decrease to around €7.3 billion once the Apple sale is completed.

Meanwhile, BBVA, which also sold €13 billion in foreclosed assets to Cerberus, has entrusted the sale of €2.5 billion in problem loans to Alantra. That operation will reduce the real estate exposure of the bank chaired by Francisco González to almost zero.

Moreover, Sabadell and CaixaBank have also completed significant operations in recent months. The former sold €9.1 billion in foreclosed assets to Cerberus, whilst the latter divested almost all of its real estate business: €12.8 billion in real estate assets, which were acquired by Lone Star.

In this way, the banks are complying with the guidelines set out by the European Central Bank (ECB) and are generating returns from their businesses in Spain, which have been weighing them down since the economic crisis.

Original story: Voz Pópuli (by Pepe Bravo)

Translation: Carmel Drake

BBVA, CaixaBank & Sabadell Recorded Revenues of €5bn from House Sales in 2017

2 April 2018 – Expansión

Last year, BBVA, CaixaBank and Sabadell recorded revenues of more than €5,065 million from the sale of homes that came onto their balance sheets due to non-payment during the years of the crisis. Santander obtained €1,295 million in this regard, and Bankia and Bankinter received €457 million and €138 million, respectively. In total, the banks in the Ibex 35 recorded sales of €6,955 million from the sale of homes, which represented a YoY increase of 6%.

In parallel to the signing of agreements to launch the transfer of the bulk of their portfolios of toxic assets to specialist funds, year after year, the banks are marketing properties through their own distribution platforms to clean up their balance sheets and return them to the figures that they registered before the outbreak of the crisis.

BBVA recorded the highest revenue figure, of €2,121 million, which represents an increase of 7.5% YoY, from the sale of 25,816 properties. Its subsidiary Anida is responsible for distributing its products in the market.

By the end of last year, BBVA’s exposure to the real estate sector had decreased by 37.2%, to €6,416 million, due, primarily, to the wholesale operations undertaken.

Last year, the bank chaired by Francisco González made a turn in its real estate strategy by agreeing to create a joint entity with Cerberus to which it will transfer some of its properties, worth around €13 billion. The bank will hold a 20% stake in that entity and the fund the remaining 80%. The operation is expected to be closed during the second half of 2018.

Last quarter

The largest increase in the sale of homes was achieved by CaixaBank, which saw its revenues rise by 20.4% YoY to €1,610 million. Most of those operations were concentrated in the final quarter of the year when proceeds of €561 million were received.

Through Servihabitat, CaixaBank markets the properties of the group’s subsidiary BuildingCenter online, as well as through the branch network and API. The bank has €5,878 million in foreclosed assets up for sale and €3,030 million allocated for rent.

The bank has engaged KPMG, Oliver Wyman and McKinsey to redefine its strategy and gain efficiencies in the divestment of the foreclosed real estate assets.

As part of that roadmap, last week, CaixaBank sold 1,458 homes to Testa for €228 million.

Meanwhile, Sabadell cut its property sales by 14% to €1,334 million due to fewer sales to institutional investors, which fell from €233 million in 2016 to €57 million a year later. Last year, Sabadell divested 14,924 properties, up by 2.6% compared to the previous year. Its subsidiary Solvia is its main distribution channel.

In parallel, Sabadell has placed two toxic real estate portfolios up for sale, proceeding in part from the former CAM, under advice from KPMG.

Last year, Santander recorded revenues of €1,295 million from the sale of foreclosed assets, which represented a YoY increase of 19.5%. The gross value of the assets sold by that bank last year was €2,168 million, up by 33% compared to the previous year. Santander obtained profits of €95 million from its sales, up by 64%.

Altamira is Santander’s distribution platform, which held €11,661 million in foreclosed assets at the end of 2017, of which €5,943 million proceeded from Popular. To that figure, we have to add €3,619 million in assets from Popular included in the operation agreed with Blackstone, which will allow the clean up of the group’s toxic assets (…).

Finally, Bankia sold 8,430 properties in 2017, which represents 20.2% of the stock it had held at the beginning of the year, for which it recorded revenues of €457 million, down by 2.9%. Bankinker, one of the banks with the lightest real estate load obtained €138 million, up by 2.2%.

Original story: Expansión (by Elisa del Pozo)

Translation: Carmel Drake

Spain’s Banks Have €6,200M In Toxic Assets Up For Sale

25 April 2017 – El Mundo

Spain’s banks want to take advantage of the improving conditions in the real estate market to accelerate the clean up of the non-performing assets that are still weighing down on their balance sheets, almost 10 years after the burst of the bubble. The main entities currently have €6,200 million in toxic assets of all kind up for sale, including land, doubtful loans, hard to recover loans, homes, hotels, industrial warehouses…

Spain’s banks have been working on this process for at least five years, and with particular intensity for the last three. Bankia, for example, has sold €10,000 million since 2013 and CaixaBank has sold €5,000 million in the last two years. The most recent major operation was closed by Banco Sabadell, in January, for €950 million.

Now, in addition to Banco Popular, which has a large volume of toxic assets still to clean up, entities such as Ibercaja, BBVA, CaixaBank and Bankia are offering investment funds assets worth thousands of millions of euros, because they prefer to sell them at a loss, than maintain them on their balance sheets. The entities are accepting losses to improve their default ratios and doubtful client figures. For the funds, the aim is to take advantage of the discounts on offer to obtain very high returns from the subsequent recovery or resale of the underlying assets. (…).

The €6,200 million currently up for sale on this wholesale market, which has a low profile despite its volume, increases to €7,800 million if we take into account the operations completed during the month of January by Banco Sabadell, BBVA, Deutsche Bank and Bankia.

Based on the operations currently on the market, Ibercaja, BBVA and Sareb (…) are the entities with the largest volume of assets up for sale. The bank chaired by Francisco González is planning to conduct a significant cleanup of its balance sheet in 2017 and is currently offering assets and secured and unsecured loans to small developers amounting to €860 million. During the first quarter of 2017, it sold 14 buildings in Cataluña and Valencia and a portfolio containing 3,500 properties to the fund Blackstone.

Meanwhile, last year, CaixaBank completed the sale of two portfolios to funds such as Apollo and DE Shaw, amounting to €1,400 million, and this year it has a portfolio of non-performing loans to property developers, amounting to €600 million. The default rate of the Catalan bank has decreased from 11% at the peak of the crisis to 6.9% now and its doubtful clients have decreased by 47% since 2013.

Nevertheless, the market expects more supply to come onto the market. The European Central Bank (ECB) is putting pressure on the entities to conduct a comprehensive clean-up in order to dispel the myths regarding how profitable they are. Bank of America Merrill Lynch considers that the volume of foreclosed assets held by the main banks still exceeds €34,000 million and that more than €10,000 million still needs to be sold in terms of land alone, which puts the sector’s capacity to clean itself up in real doubt.

The strategy that Banco Popular is following in this regard, which has to get rid of at least €16,000 million, is considered definitive. The prices that it sets and the outcome of its crisis may influence the plans of the other entities, especially those of the smallest, unlisted firms. (…).

Original story: El Mundo (by César Urrutia)

Translation: Carmel Drake

Popular’s New RE Company Will By Publicly Listed From Day 1

16 September 2016 – Expansión

The real estate company that Banco Popular wants to create from a significant portion of the foreclosed real estate assets that it has on its balance sheet, and whose shares will be distributed on a proportional basis amongst its shareholders, without any cost whatsoever to them, will be listed on the stock exchange from the day it is constituted, in such a way that its shares will have the necessary liquidity to enable their owners to do what they deem most appropriate with them.

At the moment, the heads of Banco Popular are focusing their activities on finalising the outstanding details of the design of the operation to create a real estate company, which still does not have a name, but which will incorporate real estate assets with a gross value of €6,000 million, chosen from the foreclosed assets that the bank owns, amounting to €11,140 million, and which form part of the entity’s balance sheet. And it also obtaining the necessary authorisations from the supervisors, the Bank of Spain and the National Securities and Markets Commission, as well as from the authorities at the Ministry of Economy, although the latter is not mandatory.

There is no specific timetable for completing the final phase of the process, but sources close to it indicate that it is hoped that it will become a reality during the first half of 2017, and that its launch will be announced sufficiently in advance to allow for a general shareholders’ meeting to be called, where the carve-out of the real estate company will have to be approved, along with the distribution of the shares amongst the bank’s shareholders, as if they were an extraordinary dividend.

The company will start trading on the stock market on the day of its constitution, when its shares will also be delivered to their new owners. It will have its own control and management bodies, which will operate completely independently of the bank. In this sense, a search will soon begin for a Chairman and CEO of the new company and the Board will be formed, almost in its entirety, by independent directors, with financing training and knowledge of the real estate sector.

It has not been ruled out the some of the bank’s main shareholders, who will also be main shareholders of the new company, may want to take a seat on the Board, given their shareholdings, but that is not something that is currently on the table.

The bank reported a foreclosed asset balance worth €11,140 million at the end of June, with a provisioning level that, at the end of this year, will amount to around 50% following the application of the results generated during the year and some of the recent capital increase amounting to €2,500 million, aimed at increasing the bank’s total provisioning level. This means that approximately half of these foreclosed assets (especially homes, offices and retail premises that have been completed and to a lesser extent those still in progress, and a small amount of land under development) will be included in the new company.

The company’s liabilities will be comprised of its capital, which the bank will disburse and transfer to the new shareholders; subordinated debt which Popular will purchase; and external financing for which, according to market sources, there is currently high potential demand, which will be determined on the basis of the return on the bonds issued and the relationship between capital, subordinated debt and the other financing. (…).

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Spain’s Banks Sold RE Assets For c.€5,000M In H1

8 August 2016 – Expansión

Spain’s banks are still working hard every day on the unenviable task of cleaning up the property on their balance sheets. And that was reflected in their reported sales figures for the first six months of 2016, which increased by 9% compared with 2015. In total, the major Spanish entities (which have now published their results) received proceeds amounting to €4,860 million from the sale of homes and other real estate assets during H1 2016.

This acceleration was also accompanied by another piece of good news for the banks, namely that the improvement in the real estate market is allowing the entities to record profits in many cases.

In terms of the number of real estate units, the figure remained stable during the first half of the year, with around 37,500 assets sold during the first six months, up by 0.9% compared to H1 2015. This reflects the fact that the banks completed the same number of operations, but at higher prices.

This acceleration in real estate sales comes at a time when the banks are concerned about the effect that the accounting changes applied by the Bank of Spain will have. It is hoped that the new legislation – which comes into force in October – will tighten the bolts on the provisions made by entities against foreclosed assets. In fact, some groups recorded large provisions during the first half of the year to reflect the possible impact.

Mismatch of provisions

According to several financial sources, there is a mismatch in the provisions recorded against many of the banks’ foreclosed assets. In this way, the two Royal Decrees proposed by (Luis) de Guidos in 2012 established linear provisions for all of the banks’ properties, but there are significant deviations for homes depending on the region and condition, which are not reflected in their valuations.

In addition, both the Bank of Spain and the European Central Bank (ECB) have indicated on several occasions that the entities have to decrease the weight of non-performing assets on their balance sheets, one of the major impediments against improving yields.

“If we add the doubtful asset balance to the foreclosed asset balance, we arrive at a figure of €213,000 as at December 2015 […]. Although those two numbers decreased by 14.5% in the last year, they still account for a significant percentage of the banks’ assets in Spain and they weigh down negatively on their accounts”, say the Bank of Spain.

Just like last year, Popular was again the entity that recorded the highest revenues from property sales, with 5,227 assets sold for just over €1,000 million. (…). Santander and Sabadell came in close behind Popular, with sales amounting to €994 million and €974 million, respectively. Nevertheless, it is worth mentioning that the figures provided by the entities are not homogenous, given that some include sales by property developers linked to banks as well as sales of other assets such as garages, storerooms, retail premises and land. (…).

CaixaBank was ranked in fourth place, with sales of €610 million. (…). BBVA and Liberbank were the entities that saw the highest increase in property sales. Sales by the former rose by 62% to €323 million and that figure increases to €529 million if we include the sales of assets from its property developers’ balance sheets.

Meanwhile, Liberbank increased its volume of property sales by five times to €89 million, after reconfiguring its real estate arm and assigning more resources to it.

The other entities – primarily groups created from the former savings banks – fall well behind in terms of sales volumes because their balance sheets are smaller, in part because they transferred assets to Sareb. (…).

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Banks Still Hold Doubtful & Foreclosed Assets Worth €224,000M

5 November 2015 – Cinco Días

Spanish financial institutions held doubtful and foreclosed assets amounting to €224,000 million on their balance sheets as at June 2015, according to data published by the Bank of Spain in its latest Financial Stability Report.

In its report, the body led by Luis María Linde (pictured above) warns that these unproductive assets are placing “negative” pressure on entities’ income statements, reducing their ability to generate profits, since they do not generate any revenues. These two types of assets represent 8.7% of the total assets of the banks in Spain.

Nevertheless, the volume of assets foreclosed or received in lieu of debt payments from businesses in Spain, held on the financial institutions’ balance sheets decreased by 0.9% in the last year to amount to €81,000 million. (…).

Meanwhile, at the consolidated level, the total amount of refinanced or restructured credit increased to €211,000 million as at June 2015, of which 52.1% related to non-financial companies and 45.2% corresponded to households.

Less refinanced credit for the private sector

2.4% of the total related to loans to Public Administrations, whilst the remaining 0.3% corresponded to financial companies other than credit institutions. The total volume of loans to the private sector that had been refinanced or restructured amounted to €163,800 million in June 2015, i.e. 15.8% less than in the same month a year earlier.

The Bank of Spain said that this variation represents an acceleration in the decrease seen over the life of the index, which began in March 2014. The decrease in the volume of refinancings and restructurings over the last year has been centred around non-financial companies (17.5%) and households (13.5%).

Meanwhile, the weight of refinancings and restructurings over the total credit balance has also decreased in recent quarters to account for 13% in June 2015, compared with 14.2% in the same month a year earlier.

Doubtful loans accounted for almost half of the refinanced and restructured loan balance (with a slight decrease of one percentage point with respect to last year), whilst those classified as sub-standard loans represented 18% of the total and those regarded as up-to-date (performing) loans accounted for 33% of the total.

In terms of the distribution of refinanced operations by sector, 64% corresponded to loans granted to companies, whilst the remaining 36% related to household debt.

Half of the refinanced operations relating to companies corresponded to loans granted to companies operating in the construction and real estate sector.

Finally, 26.2% of the restructured operations relating to households corresponded to loans granted to finance house purchases.

Original story: Cinco Días

Translation: Carmel Drake

Bank of Spain: Banks Still Hold Land Worth €28,500M

5 November 2015 – El País

The banks still have not fully digested the over-indulgence in real estate that preceded the crisis. The volume of assets foreclosed by financial entities due to the non-payment of loans amounted to €81,000 million as at 30 June 2015, having decreased slightly, by 0.9%, in one year, according to figures published yesterday by the Bank of Spain in its Financial Stability Report. Moreover, the main component of this €81,000 million hangover, is land, the least productive of all assets and also the hardest to sell. Land represented 35.5% of the total balance, in other words, around €28,500 million of the foreclosed assets held by banks are plots of land.

Since the crisis began, the banks have not been able to significantly decrease the volume of real estate assets on their balance sheets. Although they are selling homes and developments as fast as they can, they are still foreclosing new properties due to non-payment.

Only the clean-up of balance sheets that took place in the second quarter of 2012 and the first quarter of 2013, when the rescued entities transferred most of their real estate assets to the bad bank, led to in a decrease in the total volume. Since the middle of 2013, the volume of properties on the banks’ balance sheets has not stopped growing and it peaked at €82,500 million at the end of 2014. During the first half of 2015, the balance decreased by around €1,500 million, or 2%.

More foreclosed homes

In terms of the composition of the banks’ real estate portfolios, 35.3% corresponds to land, whose weight has decreased by almost 3 percentage points in the last year. Meanwhile, 24.9% are finished buildings (amounting to just over €20,000 million, with a reduction of 1.1 points in the last year), with work in progress buildings accounting for 6.6% of the total, having increased by 1.6 points. Finally, 21.5%, or c. €17,400 million of the total, relates to foreclosed assets resulting from house purchases (which increased by 0.5 points with respect to June 2014).

“If we add doubtful assets to those assets that have been foreclosed in lieu of the debt payments, then the banks’ held assets amounting to €224,000 million on their balance sheets as at June 2015, none of which are generating any revenues for the income statement. These two types of assets, which represent 8.7% of the banks’ total assets in Spain, are placing negative pressure on the entities’ income statements, reducing their ability to generate profits”, says the Bank of Spain in its report.

Original story: El País (by Miguel Jiménez)

Translation: Carmel Drake

CatalunyaCaixa Inmobiliaria Completes 87% Capital Reduction

4 November 2015 – Economía Digital

During the crisis, the real estate and mortgage businesses of many banks in Spain ended up becoming a major hindrance on their balance sheets, due to soaring delinquency, the large portfolio of homes resulting from evictions and the depreciation of assets.

One of the most exposed savings banks was CatalunyaCaixa and, although it transferred a significant volume of its homes to Sareb and sold its portfolio of non-performing loans to Blackstone, the property crash left a marked dent on its results, which the bank – now in the hands of BBVA – has had to offset with a significant reduction in the capital of its real estate arm.

A capital reduction of €240 million

CataluynaCaixa Inmobiliaria has recently carried out a capital reduction amounting to €239.67 million, equivalent to 87% of its share capital prior to the operation. Following this reduction, the real estate company’s share capital has been reduced to €35 million, according to registry data.

Sources at the entity have explained that the reduction has been carried out to offset losses from previous years. Although the entity had already reflected these losses in its annual results, it had to reduce its share capital to make it equivalent to its equity position, something that is has done this year in one fell swoop.

Only 6,000 homes left

CatalunyaCaixa Inmobiliaria is the holding company for the homes owned by the bank, of which there are around 6,000, according to a statement by the entity. In 2012, it transferred the majority of its portfolio to the so-called bad bank, Sareb, involving 27,500 homes, as well as around 10,000 other assets from property developers.

It got rid of its most problematic properties through this transfer, but not its homes worth less than €100,000 or the developments worth less than €200,000. Those, together with the homes that have entered its portfolio since the transfer as a result of new foreclosures, bring the total to around 6,000.

Moreover, so as to not accumulate more housing stock and at the same time, clean up its balance sheet, it closed the sale of a problem mortgage portfolio to the US fund Blackstone in April for €4,123 million.

Original story: Economía Digital (by Xavier Alegret)

Translation: Carmel Drake

Moody’s: Banks Still Exposed To High Volume Of Foreclosed Assets

12 May 2015 – Expansión

The US ratings agency Moody’s warned yesterday that Spanish banks still have a lot of foreclosed real estate assets (on their balance sheets), which are continuing to put pressure on the real estate market and are weighing down on the credit profile of the financial sector.

In its weekly report, published yesterday, Moody’s explained that with the exception of the transfers that some entities have made to the Asset Management Company for Bank Restructurings (Sareb), the stock of foreclosed properties on the balance sheets of Spanish banks has increased steadily since the start of the financial crisis in 2008. “The (volume of) foreclosed assets is increasing even though the health of the Spanish economy and its banks has started to improve”, said Alberto Postigo, Senior Analyst at Moody’s.

In his opinion, the banks are avoiding selling assets at losses and are waiting for the market conditions to improve significantly. “Although the Spanish real estate market experienced a slight improvement last year, with a 22% increase in the number of homes sold compared with the previous year, and property prices have now stabilised following several years of decreases, the recovery is not yet sufficiently strong to reduce the stock”, adds the expert.

Main factors

According to the Moody’s analyst, a variety of factors still persist, which are weighing down on the recovery of the real estate sector. These include high unemployment, a shrinking population and a huge stock of empty homes that the market is slowly absorbing.

Finally, the agency has points out that the exposure of Spanish banks to real estate assets, which include properties, as well as secured loans granted to construction and real estate companies, amounts to approximately €300,000 million. Real estate assets amounted to €83,400 million in total in 2014.

 Original story: Expansión

Translation: Carmel Drake