Tag: banks

Banks speed up the sale of non strategic assets in order to reinforce their capital.

Banks have placed the “For sale” sign on most of its assets and businesses. Either to reduce their balance, or to increase the capital base or even to improve their efficiency, financial institutions have speeded up the sale of non strategic businesses during the last few months. And, according to experts, this is only the beginning of a trend which will continue in 2013.

Those institutions that have received financial aid, such as Bankia, Catalunya Banc or NCG Banco, are the most active ones when negotiating disinvestments, as imposed by Brussels. Nevertheless, healthy institutions are also taking the initiative. (…)

There are all kind of different businesses on sale: insurance companies, fund and retirement pensions management companies and deposit companies. They are also studying the sale of more strategic areas for banks such as the recovery services, real estate management platforms or even the segment of credit cards. In the short term, nationalized banks may also transfer network of branches and participated companies.

Banks started to get rid of the insurance business once the crisis started. All institutions have obtained gains with the agreements on insurances or the sale of portfolios. These agreements will allow them to liberate capital, which is absorbed on a greater scale by insurances, facing Basel III.

In other segments, Popular has been one of the most active institutions in Spain. It transferred 51% of its fund management company to Allianz in 2011, it outsourced its business of custody and liquidation of national and international securities to BNP; and has closed the sale  of its recovery services to EOS Group and a portfolio of troubled loans of 1150 million Euros to Lindorff and AnaCap.

That type of business and portfolios is the one with the most agreements during this last year. Santander was the pioneer in this field, transferring its recovery subsidiary, Reintegra, to Lindorff, in 2011. Banesto followed its steps last year when it sold Aktua to Centerbridge.

Now, institutions such as Bankia and CaixaBank want to go ahead transferring their teams specialized in the management and recovery of real estate assets. Bankia Habitat, will be in new hands from May on. Meanwhile, CaixaBank wants to do the same with Servicaixa, according to Bloomberg.

The fund management companies are another non strategic segment, although the sale agreements are still scarce in this sector. One of the last operations, other than the Popular one to Allianz, is the sale of the management company to Liberbank, acquired by Banco Madrid.

Apart from the transfer or outsourcing of businesses and services, experts hope for more operations of strategic assets for institutions, mainly because of the requirements imposed by the troika in order to approve the Spanish financial rescue. Investment banks sources do not dismiss new operations such as the BMN one, which transferred the former Caixa Penedes to Banco Sabadell.

An increase in the sale of participated companies by nationalized and healthy institutions is also expected. La Caixa has already done so, with the sale of 3% of Abertis to OHL. The Catalan savings bank needs to close new disinvestments with the aim of complying with the new requirements from Brussels. (…)

BBVA will pay 1000 million Euros more to the Deposit Guarantee Fund (DGF) for not having invested in the bad bank.

Luis de Guindos, minister of Economy, declared that the DGF might need an amount between 1.500 and 2.000 million Euros in order to acquire the shares of Catalunya Banc and Novagalicia Banco from small investors who received them in exchange for their preferred stocks and subordinated debt.

The amount will be obtained through an extraordinary quota, as the DGF does not have enough funds. 40% of it will be paid in January 2014 and the rest, in seven years according to a calendar that needs to be established.

The distribution of this extraordinary quota among all institutions whose deposits are guaranteed by the DGF will be done, as usual, depending on the quota of calculated deposits of each of the institutions under the guarantee of the fund. The amount will be of three per thousand of those deposits.

Should this extraordinary quota be even, then it would only be necessary to distribute the 2000 million Euros between each institution depending on their quota and that would be the end of it. The problem is that the decree establishes that the committee of the DGF, made up of twelve members, six of which belong to the Bank of Spain while the rest represents the financial institutions, can make important modifications on this distribution.

They may decide whether or not those banks with public aid should participate. This would reduce considerably the number of institutions that need to pay the 2000 million Euros. They may also decide that those smaller institutions, that do not reach a volume of 5.000 million Euros in deposits, only pay half the amount. This would be an important amount for these institutions, but rather small on the total amount.

Finally, the royal decree allows that those institutions which are a part of the bad bank can deduct up to 30% of the total amount transferred to Sareb from the amount they would need to pay. 16 banks are now shareholders of the bad bank, with an investment of 24.706 million Euros. That is, if they are authorized, they could reduce their contribution to the GDF by 741.8 million Euros.

If those who have received public aid are also exempt, the amount to be paid by all others would increase by 440 million Euros. Also, if those who have transferred amounts to Sareb may deduct 30% of this contribution, BBVA will have to contribute with 740 million Euros as it is the only important institution that has not participated in the creation process of Sareb. The three per thousand of its deposits would also need to be added to that amount. In total, more than 1.000 million Euros, that is, more than half of the total quota. (…)

There has been no official reaction from BBVA. Nevertheless, the fact that they will need to contribute with half of the extraordinary quota has been a surprise as they were confident that the Troika would prevent this measure as they would see it as discriminatory.

Fortress, Appollo and other funds wish for the business liquidated by the nationalized institutions.

Credit portfolios, recovery businesses, real estate divisions and now, the business in liquidation. The restructuring imposed by Brussels to the nationalized institutions – Bankia, NCG Banco and Catalunya Banc – has turned out to be a substantial business for foreign funds and banks. Some of these investors have met in the last few weeks showing an interest in the business being liquidated: credits, branches and staff.

If there are no last minute changes, the first serious offers will arrive in the next few weeks. A public tender cannot be dismissed in view of the growing interest.

These are potential operations that offer great advantages for both parties. The nationalized institutions can maintain part of their staff, avoid the economic and social cost of layoffs. The funds have the opportunity of acquiring credits and commercial and recovery teams at bargain prices, as well as some agreements on the provision of services.

The three bigger nationalized institutions are obliged by Brussels to reduce the credit volume in nearly 100.000 million Euros in the next few years (until 2017); its staff in more than 8000 workers; and its commercial network in more than 2000 branches. These cuts provide a business that the funds do not want to lose.

The reductions which interest the foreign investors most are the ones to be carried out in the expansion areas, entered by the savings banks in the last years of the real estate boom.

In the case of NCG Banco, the Galician institution has around 200 branches far away from the area considered strategic by Brussels. Nearly 120 of these belong to EVO Banco and would not be included in the type of operations sought by funds and 60 are included in the Management Unit of Single Assets (MUSA). The Galician group has received a lot of interest on this unit, which would also include 60 branches, 900 professionals and credits for 20.000 million Euros. Nevertheless, sources from the institution declare that their initial priority is to sell EVO Banco. Out of these 20.000 million Euros, half of them would be healthy credits and the other half default credits.

Some funds prefer to concentrate on the recovery teams and the default credit portfolios. They would then continue providing a recovery service to NCG Banco and they would acquire some of the default credit portfolios included in the unit MUSA.

Other funds are preparing offers for those healthy credits awarded outside the strategic region of NCG: Galicia, Leon and Asturias. Should these operations be closed, the acquirer would be in charge of managing the current credits, but would not grant further loans or deposits.

Along with NCG Banco, the funds and financial institutions are studying the possibility of acquiring part of the commercial network of Catalunya Banc. Brussels imposed the closure of 400 branches, 35% of all it had at the end of 2011. It also has the obligation of closing any business outside Catalonia and part of the one within the region, mainly in the provinces of Lerida and Gerona, according to financial sources.

Bankia has already closed the sale of non strategic assets. It has been done partly to save jobs, such as with the sale of Finanmadrid to Appollo, with the transfer of 124 people, or with Bankia Habitat, on sale with a staff of 500 employees. The troika has allowed Bankia to maintain part of its network in its natural area of influence. It was national since the very beginning, and therefore it will not need to leave any region. But Bankia still has to close 1100 branches and get rid of 4500 employees. The institution already has requests for early retirement buyouts for 3000 employees.

Source: Expansión

Sareb pays at least 112 million Euros to banks every year for the management of assets.

The management commissions have been one of the biggest problems for the managing team at Sareb in the last few months. After hard negotiations with the financial institutions, Sareb has fixed an annual fee of 0,15% on the managed patrimony which will be paid to those banks which have received public aid, that can be increased to 0,22% depending on some incentives.

Should these objectives, established in the annual budget, be fulfilled, the bad bank will pay 112 million Euros annually to the nine institutions which have transferred their damaged assets: BFA-Bankia, Catalunya Banc, NCG Banco, Banco Gallego, Banco de Valencia, BMN, Liberbank, Caja3 and España-Duero. In total, Sareb manages 50.800 million Euros in toxic loans and awarded properties.

These institutions managed to convince the managers from the bad bank so that they increased the minimum commission by 50%. Initially, the offer of the institution was of 0,1%.

Sources close to Sareb explain that the gain obtained by the banks with these 112 million Euros will be a minimum one “as it barely helps to cover costs”. “They can really earn some money with the sale, rent, financing or recovery of those assets”, they added.

In total, the commissions earned by an institution that manages, sells and finances an asset could reach up to 6%, depending on various objectives.

Among them, the selling price is the most important one. The commission for sale could reach 3,5%, provided that they sell the property at a price 25% higher than the transfer price.

Sareb acquired the real estate assets with a discount of 52% on their value in books. In order to obtain the commission of 3,5% the institutions have to sell the properties with discounts 40% under the initial value.

Along with this fee, the bad bank offers an additional commission in case the selling institution finances the operation, in what is known as vendor finance.

Apart from the incentives, Sareb has also established minimum objectives of management and sale. If the nationalized and group 2 institutions do not comply with them, they could lose even the 0,15% established as a management minimum.

The institution designed this management and sale structure in order to be able to start working as soon as possible. The Frob created the bad bank in August and on the 2nd January it was already in operation. It has therefore had to turn to the institutions that know the assets best, the same ones that transferred them, to manage them provisionally. They should do it for one or two years.

Sareb still has to decide what it will do once this period is over. Its decision will depend on the conclusions of the due diligence work lead by the law firm Cliffford Chance, with a team of 600 professionals from law firms, real estate agencies, technology and audit companies.

One possibility which is being looked upon within the sector is the creation of one sole managing team which depends from the top executives from Sareb. Another possibility would be for the purchaser of Bankia Habitat to coordinate the task.

The institutions started to market a batch of 13000 properties among individuals in February. This will not be the priority channel, as most of the assets within Sareb (non developed properties and credits) should find an acquirer in the institutional market. (…)

Source: Expansión

Catalonia and Valencia, the two communities with the most properties in the social rental fund.

 Catalonia, the Valencian community and Andalusia are the regions with the biggest number of properties in the social housing fund (SHF) created by banks in order to rent to those who have suffered the eviction from their homes since 2008 and comply with certain socioeconomic requirements. (…)

The SHF has 5047 properties, a quantity which is lower than the 5841 ones committed by banks in the agreement that regulates the functioning and the features of the fund signed last January.

These differences can be explained by the fact that Caixabank has organized its contributions to the fund on a quarterly base.

As explained by the bank in its web page, it has awarded 200 properties to the fund in this first call, and will be increasing this number throughout the year until reaching the 850 announced properties. (…)

Source: Expansión

RPT- Spain’s banks face more pain from property clear-out.

Banks in Spain may take bigger losses than they hoped this year on real estate repossessed from borrowers, as they compete for buyers with Sareb, the agency tasked with clearing up the weaker banks after a property crash.

Banks were left holding hundreds of thousands of houses, half-built commercial and residential developments and plots of land after borrowers and developers ran into trouble when the property boom turned to bust in 2008.

Property-related losses eventually forced the government to secure a 40 billion euro ($53 billion) bailout for its banks from Europe.

Last year, the banks wrote down foreclosed property on their books by around 40-50 percent after government decrees forced them to make provision for losses and reflect lower market values. The clean-up helped them start selling housing at discounts, mainly to individuals, but with the country in a deep recession and unemployment at 26 percent, demand for property is weak even at knockdown prices.

But now lenders face competition for buyers from Sareb, the “bad bank” set up to manage up to 60 billion euros’ worth of assets from bailed-out lenders, which put its first lot of 13,000 properties up for sale at the end of January.

Since Sareb, set up at the request of Brussels, is taking over assets from rescued banks at discounts that are steeper than those forced on the sector by the government, the fear is that its disposals will push down prices and clog up the market.

Yet if Spain’s healthier banks turn to private equity firms and hedge funds to help shift their assets, they might have to swallow more losses too. Four investment bankers in Madrid said funds typically demanded discounts of 60-80 percent.

“The sale of secured assets to investors would likely be done at prices below those of the Royal Decrees (the government-enforced clean-up), with big discounts,” said Fernando Acuna of Taurus Iberica, which markets banks’ properties and advises them on portfolio sales.

“The discounts from the decrees were more in line with the prices seen in the normal consumer market.”

But what is normal once Sareb is selling in volume? Early estimates had put the properties Sareb would house at 89,000, though Sareb said that could change.

There are about 200,000 repossessed properties in Spain, on top of 1 million newly built homes for sale, rating agency Fitch estimated in December, adding that banks had on average been selling properties last year at half the price they were originally valued at.

CRUISING SPEED

Property prices have already slumped 35 percent from a 2007 peak, according to real estate valuations group Tinsa, and Fitch forecast recently they had another 15-20 percent to fall.

Banks able to take another hit could now start selling portfolios to investors to move quickly with disposals, bankers said.

Santander, which has said it wants to aggressively shed property assets this year, is setting aside 1 billion euros in its 2013 budget to cover possible portfolio sales at a “significant discount”.

“If we can get in there before the Sareb starts achieving cruising speed, so much the better,” Chief Executive Alfredo Saenz said in January during a results presentation. Capital gains from sales of other items would offset the hit, he said.

U.S. funds Centerbridge, Apollo, Fortress, Lone Star and Cerberus are among those actively circling the Spanish market for property assets, investment bankers said.

FORECLOSURES ON THE RISE

Not all Spanish banks will want to take more immediate pain from their property problems, with Santander and rival BBVA , the country’s top two banks with large overseas operations, better able to weather writedowns than most.

Selling to individuals is slower than shifting portfolios but typically costs less, because individuals are not necessarily looking to turn a profit like funds are.

BBVA for example said it had sold 12,000 foreclosed properties last year at an average 40 percent discount, mainly by selling them piecemeal.

But asset values risk dropping the longer properties sit on banks’ books, and lenders may struggle to sell anything beyond their better assets to individuals at attractive prices.

House prices have fallen more sharply on the Mediterranean coast, where developers erected kilometres of resorts that now stand empty, than in city areas, according to Tinsa.

Funds are also interested in the best real estate, such as commercial developments or upscale flats in the centre of big cities, but they might also help banks shift less attractive ones at heavily discounted rates, bankers said.

Foreclosures are also still rising – up over 18 percent in the first nine months of 2012, court data shows – adding to the pressure to sell existing stock. And developers are still collapsing, with major real estate firm Reyal Urbis filing for insolvency on Tuesday.

While banks have no firm timelines to rid themselves of properties, keeping big exposures could also hinder their funding prospects as they try to cut their reliance on central banks and turn to bond markets instead.

“Spanish banks seeking to target international investors as a source of funding must now reduce their exposure to real estate assets to help regain investor confidence,” Fitch analysts Carlos Massip and Juan David Garcia said in a December report.

Source: Reuters