BBVA, Sabadell & Bankinter Raise Their Fixed-Rate Mortgage Rates

2 February 2017 – Expansión

The move comes at a time when fixed-rate mortgages account for 31.8% of all new mortgages signed, according to the most recent data from Spain’s National Institute of Statistics (INE), which corresponds to the month of November 2016. The figure (which includes mixed mortgages) sets a new record and comes in stark contrast to the same month in 2015, when fixed-rate mortgages accounted for just 9.3% of the total.

The move applies to all terms (periods) and involves increases of around 20 basis points on nominal rates and AERs (annual equivalent rates, which indicate the total cost of mortgages).

Bankinter, which was the most aggressive entity when it came to offering fixed-rate products during 2016, raised its prices across all mortgage terms on 15 December, from an AER of 2.82% to 2.96% over 10 years; from 2.94% to 3.10% over 15 years; and from 3.09% to 3.26% over 20 years.

Domino effect

(…). This move was immediately followed by BBVA. It increased its mortgage rates from an AER of 2.72% to 2.98% over 20 years; from 2.98% to 3.24% over 25 years; and from 3.01% to 3.55% over 30 years.

At the time, the bank chaired by Francisco González kept the conditions of the 15-year product the same. However, last month (January), it increased that rate too from 2.50% to 2.76% AER. It was BBVA that took the market by storm last March with its launch of the best fixed-rate, 15-year term, mortgage on the market.

In this way, the rise in fixed rates is being led by the very entities that supported the promotion of fixed-rate products so heavily in the first place. And despite the upwards increases, these entities continue to offer some of the most attractive mortgages in the Spanish market. (…).

The latest entity to have announced rate rises is Banco Sabadell, which has increased the nominal interest rate on its Premium Fixed-Rate Mortgage by 20 basis points. That means an increase in the NIR (nominal interest rate) from 2.70% to 2.90% over 20 years and from 2.90% to 3.10% over 30 years. (…).

In recent months, the price cutting of fixed-rate mortgages had focused on the 10-year and 15-year term products, where this type of product is less attractive, given that over short timeframes, experts recommend taking out variable rate loans in order to benefit from zero interest rate scenarios.

End of an era

(…) With these rate rises, we are now leaving behind an era during which the banks competed fiercely to offer the best conditions on their fixed-rate loans.

The experts agree that the price of these mortgages will not fall to their 2016 levels again. They believe that last year represented a historical opportunity for buyers, who will now have to face tougher demands in terms of prices and conditions – commissions and the forced cross-selling of products.

Original story: Expansión (by Enrique Utrera)

Translation: Carmel Drake

Santander & BNP Put €319M Of Mortgages Up For Sale

19 October 2016 – Expansión

Unión de Créditos Inmobiliarios (UCI), the financial credit company owned jointly by Santander and BNP Paribas, has packaged up 3,850 residential mortgages in Madrid, Andalucía and Cataluña to sell them in the market. To this end, it has structured a securitisation fund amounting to €420 million, of which €319 million will be placed with final investors, a tranche that has been assigned a high quality AA rating by Standard & Poor’s.

It is the third operation that the entity has undertaken in less than a year, as part of the Prado series. Given that UCI is regarded as a special lender, it is not able to approach the European Central Bank in search of financing, and so it is taking advantage of the reactivation of the securitisation market. In total, it has launched three securitisation funds amounting to €1,410 million during this period and a large part of the debt has been sold to investors. On this occasion, UCI is paying competitive prices, of 65 basis points above 3-month Euribor.

According to financial sources, the types of clients involved in this specialist kind of mortgage transfer tend to be those who are unable to access a normal bank, in other words, those who have more risky profiles. But in this securitisation, as S&P has highlighted, the loans are more robust than in standard securitisations because they have lower loan to values (loan amount over appraisal value).

Original story: Expansión (by D. Badía)

Translation: Carmel Drake

Hotelbeds Borrows To Finance Its Own Purchase (By Cinven & CPPIB)

8 June 2016 – Expansión

Hotelbeds has had new owners for just over a month. At the end of April, the private equity firm Cinven and the Canadian fund CPPIB won the bid opened by TUI to sell the Spanish travel services supplier. They put a joint offer on the table, valuing the company at €1,165 million, which exceeded all of the other bids. Now, they are holding negotiations regarding how they will pay that price.

All indications suggest that the target company will end up paying a large portion of the bill itself, in a debt operation that is typical in private equity acquisitions. According to several financial sources, Hotelbeds is in conversations with seven banks to obtain financing, including a syndicated loan amounting to €490 million and a line of credit amounting to another €150 million.

BBVA, Morgan Stanley, HSBC, UniCredit, Deutsche Bank, Bank of Ireland and Mizuho are the entities participating in the syndicate, which is expected to be closed within the next few days and whose fruits will be used to pay for some of the acquisition.

Neither the purchaser nor the vendor has provided details about how much of the €1,165 million value assigned to Hotelbeds will be paid for in debt and how much will be paid for in cash, but some of the parties involved implied that the latter will account for more than half of the total price. Using that reference and the fact that Cinven and CPPIB are not purchasing 100% of the company, rather some of its shares will remain in the hands of the travel services supplier’s management team, then it seems likely that the €490 million syndicated loan will cover a significant part of the total financing.

Hotelbeds will pay at least 500 basis points (5.5%) above Euribor for the syndicated loan, which will have a seven year term, according to financial sources. That spread was the maximum established to begin negotiations, so it may decrease, depending on the banks’ appetite and the conditions offered by the company.

The same thing will happen with the €150 million line of credit. In that case, the term will be six years and the minimum spread will amount to 450 basis points, but the definitive conditions will not be agreed until the negotiations have been finalised. (…).

Hotelbeds’ financial results work in its favour with respect to its negotiations with the banks, according to financial sources. The supplier works with 75,000 hotels in 180 countries and recorded a turnover of €1,200 million in 2015 and an EBITDA of €117 million. In addition to hotel rooms, the company also manages transfers, trips and corporate events.

Original story: Expansión (by Inés Abril)

Translation: Carmel Drake

BBVA Places €1,250M 7-Year Mortgage Bond Issue

9 March 2016 – Cinco Días

On Tuesday, BBVA launched a 7-year mortgage bond issue, amounting to €1,250 million, at a price of 52 basis points above the mid swap rate, the reference rate for this kind of placement.

The operation was well received, with demand amounting to €2,700 million, according to market sources. That drove down the price from 60 basis points first thing, to the aforementioned spread of 52 basis points above the reference rate. The figure represents the cheapest price at which any Spanish bank has placed debt so far this year.

By geography, 41% of the debt was placed with German and Austrian investors; 18% was placed with Spanish investors; 10% with Norwegian investors; 9% with investors from France and the Benelux countries (Belgium, the Netherlands and Luxembourg) and 8% with Italian investors.

In addition, another 4% of the debt was placed with investors in Europe; another 3% in the UK and Ireland; and another 2% in Switzerland. By type of investor, the main buyers were central banks and official bodies (37%); followed by fund managers (27%); insurance companies and pension funds (18%) and banks (17%).

The banks that acted as the underwriters of this debt issue were BBVA itself, as well as Citigroup, Crédit Agricole, Lloyds Bank and Sociètè Gènèrale.

BBVA already issued €1,000 million in 5-year mortgage bonds during the first few days of the year. This type of issue has been very popular in recent times. Also in January, Bankia issued €1,000 million in 5-year bonds; Santander placed €1,000 million in 10-year bonds; and the Spanish subsidiary of Deutsche Bank issued €500 million in 7-year bonds.

Meanwhile, CaixaBank issued another €1,500 million in 7-year bonds at the beginning of February and Banco Popular followed suit later that month with the issue of €1,500 million in 7-year bonds.

Original story: Cinco Días

Translation: Carmel Drake

Botín Re-Opens The Mortgage Resale Market 8 Years On

10 June 2015 – Cinco Días

The packaging and resale of high-risk, or subprime, mortgages between large financial institutions in the United States was the epicentre of the international crisis that began to unravel in 2007 and which revealed its devastating force one year later, with the bankruptcy of Lehman Brothers.

When that bubble burst, it swept away much of the market for mortgage securitisations, amongst other things. In the case of Spain, which had become the second largest market in Europe and one of the most important on the global stage, the market vanished. But now, it is making a come back.

Unión de Créditos Inmobiliarios (UCI), the financing arm of Banco Santander that specialises in loans for home purchases, has just signed the first operation of this kind to be closed with investors since 2007.

Specifically, at the end of May, UCI placed a €450 million package of mortgages, backed by residential homes. The portfolio, which has been assigned a Aa2 rating by Moody’s, is considered to be a high quality product, since it comprises loans that, on average, cover 53.8% of the values of the homes (loan to value), compared with the limit of 80%, recommended as good practice in the sector.

It is understood, therefore, that the clients that took out these mortgages had (access to) significant resources beyond the financing they requested and that the real estate guarantee behind the loans (homes acquired across the whole of Spain between 2006 and 2013, of which 79% are located in Andalucía, Madrid and Cataluña) would more than cover any possible non-payment.

The sale received a great deal of interest from banks and investment funds, primarily those based in Germany, The Netherlands, France, the UK and Spain, with demand for the package exceeding its value by 1.7x, according to sources close to the operation.

The placement coupon was Euribor plus 0.85 points, compared with the differential of 25 or 30 basis points that was paid in Spain eight years ago. That lower differential is being paid now in the UK and The Netherlands, where the market has never completely closed, but where the differential increased to 150 basis points after the outbreak of the crisis.

Sources at UCI, which placed securitisations amounting to €12,000 million between 1994 and 2007, understand that “since this is the first transaction, a premium must be paid in order to return to the market”, but that it is still an “attractive level”.

The same sources say that the step has been taken as the result of three factors. “Until 2014, there were no transactions involving the public issuance of securitisation bonds in countries on the periphery of Europe. Nevertheless, following an RMBS (residential mortgage-based securitisation) bond issue in Italy, we saw an opportunity for us to issue debt”. They add that the debt purchase program launched by the European Central Bank has, in turn, led to the “revitalisation of the securitisation market”. “Despite that, after eight years of paralysis, bond issues have not been possible until now, since we needed to reach a post-crisis economic situation”.

UCI expects to undertake similar issues in the future and hopes that its example will encourage other entities to do the same.

Original story: Cinco Días (by Juande Portillo)

Translation: Carmel Drake

Popular, BBVA & Sabadell Have Lowered Their Lending Rates The Most

18 February 2015 – Expansión

«We will have to work up a sweat»: Warned the Chairman of the Banking Association, José María Roldán, at the end of last year, when he predicted that the fierce competition between financial institutions to supply credit to solvent clients in Spain would continue well into 2015.

The economic recovery, the lower cost of financing and the ever declining profitability of fixed income securities are spurring a trade war between the banks, which first took each other on in a battle to provide loans to SMEs and then moved onto mortgages.

In the race to expand their customer bases and secure customer loyalty, whilst at the same time protecting their market shares, banks have reduced the cost of credit in the last year, although the size of the reductions vary a lot between entities, according to information compiled from their respective results presentations.

Popular, BBVA and Sabadell have lowered their lending rates the most in the last year. The entity led by Ángel Ron (Popular) leads the ranking in terms of commercial aggressiveness, with a decrease of 34 basis points, which placed its credit yield at 3.53% at the end of 2014. Even so, its yield remains the highest in the Spanish banking sector.

Next, BBVA and Sabadell have applied a price cut of 20 and 19 basis points, respectively, bringing their interest rates to 3.32% and 2.80% in each case. To a lesser extent, Santander has also made its loans in Spain cheaper (by -6 basis points), and so too have Caixabank (-2 basis points) and Bankinter (by one basis point).

Popular, Sabadell and BBVA also lowered their lending rates during the last quarter of 2014, with respect to the previous quarter, whereas all of the other entities chose to maintain their rates unchanged. In any case, the downwards trend in the price of loans granted by Spanish banks is mitigated by the fact that the overall yield depends on the performance of the whole portfolio and not only on that of new loans.

Bankia is not included in this analysis, because it has not yet presented its results for 2014. It is awaiting notification of the percentage of the charge that the Fund for Orderly Bank Restructuring (the FROB) will assume in the payment of compensation for the claims made against its IPO in 2011.

The banks consider that reducing returns on deposits will continue to offset the lower returns on its loans, and therefore they will avoid any squeeze on their client margins, which is following a slight upwards trend, and will allow them to protect their results from the top of the income statement.

However, the price of retail liabilities is ever closer to bottoming out, and therefore the main challenge facing the banks in the short term is to try to offset cheaper loans with higher volumes during a year in which the total credit balance will remain stable or increase slightly, according to some entities.

In any case, in the second phase of the loan war that has begun this year, price is not the only competitive advantage being offered by the banks; they are also increasingly striving to adapt their products to the needs of clients.

In terms of loans to companies, businesses value the speed of response to their loan requests and in-depth knowledge of their business and needs. In terms of the mortgage offer, the requirement to link them to other indicators and products (payroll, average balances, credit cards, insurance, pensions, etc.) is decreasing and the amount loaned as a percentage of the property value (LTV) is increasing.

Original story: Expansión (by Alicia Crespo)

Translation: Carmel Drake