19 February 2015 – Expansión
Good news for Sareb. The company has not yet published its accounts for 2014, since it is still waiting for the Bank of Spain to define its accounting framework and whereby determine its final results. But the company, chaired by Jaime Echegoyen (pictured), has taken an important step that will help to improve its results in 2015, its third year of operation.
The bad bank has just renewed the debt that it raised to pay the rescued savings banks for the properties and developer loans that they transferred. Instead of cash, Bankia, Novagalicia (now Abanca), Catalunya Banc, Banco de Valencia, BMN, Liberbank, Banco Caja Tres and Ceiss received senior bonds backed by the State.
The bonds, whose interest rate is linked to 3-month Euribor and the spread on Spanish debt, had maturity dates of one, two and three years and are renewed automatically. The debt relating to the entities classified in the so-called Group 1 (the larger ones) was renewed in December and now (in February) it has been the turn of the Group 2 entities.
Thanks to improved market conditions, in particular, the decrease in the risk premium on Spanish treasury bonds, Sareb has significantly reduced the yield on these senior bonds to the extent that the average spread on its debt portfolio has fallen from 1.954% to 0.832%.
In this way, Sareb will reduce its financing costs by €400 million in 2015, according to the institution’s official calculations. In other words, with the renewal of this debt, the former savings banks will no longer receive this amount for the real estate assets they transferred to the bad bank, which will have a negative impact on their net interest income this year.
The decrease in the interest payments on this debt would have been even greater without the coverage that Sareb contracted over 85% of the portfolio through a swap, which establishes a fixed interest rate regardless of the evolution of Euribor. In this way, it protects its results from upwards movements in the base rate, but it also mitigates the positive effects of any downwards movements.
Repayment of €5,416 million
Sareb’s financing costs have also been reduced by the repayment of debt. The bad bank issued €50,781 million in bonds when it was created to pay the savings banks for their assets. Since then, thanks to the income generated from the sale of properties and loans, it has repaid €5,416 million of that balance.
The amount of debt repaid in 2014 exceeded the initial expectations of €3,000 million by more than €400 million. And Sareb expects that it will exceed its bond repayment forecasts this year as well, although it has not yet shared these forecasts with the market.
“Sareb is fulfilling its main objective, which is to manage and sell its portfolio of assets without generating higher costs for the taxpayer”, said the Chairman of the bad bank in the first ordinary meeting held by the Board of Directors in 2015.
His predecessor in the role, Belén Romana, used to repeat the mantra that reducing its own financing costs was one of Sareb’s priorities to pave the way towards sustainable profitability. Its financing costs amounted to €1,272 million in 2013 and decreased to €1,135 million in 2014. In all likelihood, this downwards trend will only accelerate from here on in.
Original story: Expansión (by Alicia Crespo)
Translation: Carmel Drake