Bankia Begins its Spring Cleaning in Earnest, Selling off Real Estate Assets

31 August 2018

The financial institution has so far lagged behind the other banks’ efforts to unload their portfolios of foreclosed real estate properties.

Since the end of 2014, after having transferred the worst of its assets to Sareb, Bankia has sold €4.2 billion defaulted loans to institutional investors. According to Moody’s, it is the banking institution which has sold off the most assets since then. However, the sales of much of the property inherited by many of Spain’s largest banks to investment funds has left Bankia behind in the clean-up process. The bank still has properties valued at €4.761 billion and another €10.809 billion euros in NPLs (developers and non-developers).

These assets account for roughly 8% of Bankia’s total assets. This percentage contrasts with BBVA, CaixaBank and Sabadell, whose sales have left their exposure at 4% or less, a level considered acceptable by the major rating agencies. They will lower their exposure to that of Bankinter’s in just a few months, which barely financed any developers during the credit boom.

Changed dynamics

BBVA sold a portfolio of 78,000 flats, stores and garages to Cerberus and €1 billion in delinquent loans to a Canadian fund this year. CaixaBank transferred its entire real estate portfolio to Lone Star -leaving out the Banco de Valencia – just holding on to its delinquent loans. Finally, Sabadell’s exposure will fall to just one billion euros of foreclosed properties.

Santander was the institution that began the change, with its sale last summer of most of the assets it inherited from Popular, within a few weeks of acquiring the bank.

Publicly, Bankia’s management has indicated that they will maintain their policy regarding sales of medium-sized portfolios (up to 500 million euros) so as not to generate losses for the bank. This way it may avoid the discounts of between 60% and 80% that the funds have been achieving when acquiring the large portfolios of real estate assets.

So far this year, Bankia sold a €290-million portfolio to Golden Tree, with two more in preparation, one worth €450 million and another €400 million. The merger with BMN added even more toxic assets to the bank’s balance sheet. 71% of the buildings are finished homes, which are more easily sold. Haya Real Estate (Cerberus) is in charge of marketing, with which the bank just renegotiated its contract after the merger with BMN. So far this year, the group has sold apartments and stores worth 309 million euros. The percentage of land in the portfolio is small, at 6.7%. “We were the first to sell portfolios. For the type of asset we have, we believe that the placement of medium-sized portfolios is what gives us the best result in terms of price, because that is where we find more interest and competition from interested buyers,” the CEO of Bankia explained.

As a result, in 2012, Bankia transferred its worst assets (in large part, delinquent loans to developers) to Sareb, the bad bank. It transferred assets worth €22.317 billion, of which €2.850 billion came from its parent BFA. For its part, BMN transferred assets valued at €5.819 billion to the public vehicle.

Sareb applied a 45% discount to the loans to developers, 63% to ongoing developments and 79.5% to land.

The flats and NPLs only generate expenses – payments of local taxes – and no income, therefore decreasing the banks’ profitability. That is why it is so important for the banks to get rid of the real estate as quickly as possible. In the case of BBVA, the bank could double its level of profitability in two years, according to Alantra. Something similar could occur with CaixaBank and Sabadell.

Bankinter’s healthy balance sheet is the reason why it has an ROE ratio (13%) that is much higher than that of its competitors.

An eventual sale of Bankia’s real estate holdings could also help boost its stock market price, to reduce the possible need for public aid, according to analysts.

The firm Keefe, Bruyette & Woods believes that Bankia will continue to have the second-worst ratio of unprofitable assets of Spain’s listed banks in 2019 and 2020, only behind Liberbank.

Santander Spain is in the middle of the group because while it cleaned up Popular, it has yet to follow through on Santander’s own, original exposure.

Original Story: ProOrbyt Expansión – R. Lander

Translation: Richard Turner

 

Bank Of Spain Puts Pressure On Banks To Accelerate Property Sales

7 September 2016 – Cinco Días

The Bank of Spain wants Spain’s financial institutions to speed up the sale of their foreclosed assets and get rid of their toxic assets as soon as possible. The supervisor has been unmoved by the banks’ requests to relax some of the interpretations of the accounting circular 4/2016, which comes into force in October, governing their provisions against properties. The banks still hold more than €84,000 million of foreclosed assets.

Spain’s banks are finalising the figures for the new provisions that they will have to make following the entry into force of accounting circular 4/2016 and in particular, its Annex IX, on 1 October, which modifies circular 4/2004 for credit institutions. Initially, the Bank of Spain said that this new standard would hardly affect the final calculation of the sector’s provisions this year, but the reality is somewhat different, at least for several institutions, according to financial sources.

The body led by Luis María Linde has tightened the provisions for foreclosed assets. This twist has forced several entities to make fresh efforts in terms of their provisions, which will be deducted from their income statements. In response, some of the financial institutions had asked the Bank of Spain, during meetings that they are holding regarding the application of this circular, to relax certain concepts and interpretations of the standard. But it seems that the national supervisor has been indifferent to these requests, according to sources in the sector.

Ultimately, the Bank of Spain wants to force the banks to accelerate their property sales and get rid of their real estate assets as quickly as possible. Sources in the sector say that this is the message that the supervisor has been communicating in its meetings with the banks.

Linde wants the sector to significantly reduce their assets, which amounted to more than €84,000 million at the end of 2015. Sources indicate that the Bank of Spain has not set a date for this reduction, but it seems to be clear from both the conversations and the regulations that it seeks to considerably reduce the figure over the next three years. The problem is that the foreclosed asset balance has increased quarter after quarter since the outbreak of the financial crisis in 2008, despite attempts by the sector to sell off properties at significant discounts.

In fact, the heavy weight that these foreclosed assets continue to represent on the balance sheets of Spain’s banks is one of the main criticisms levied by the European Central Bank and other international supervisors.

Over the last three years, the banks have accelerated the sale of these assets, but the incoming volumes still exceed those sales. In addition, the large speculative investment funds, which were previously committed to purchasing large packages of properties, have now reduced their operations, and some are even exiting from certain property purchase operations ahead of time as they are obtaining lower returns than expected, indicate sources at one major bank.

The new accounting circular not only affects the financial institutions, but also the partners that manage those properties, such as Altamira, Aliseda, etc. In the case of La Caixa, it affects its holding company, Criteria, which owns €2,600 million of foreclosed assets and CaixaBank, which holds another €7,122 million. The same thing has happened in the case of Bankia, with the circular affecting both the bank and its parent company BFA, even though that group transferred most of its foreclosed assets to Sareb.

The main domestic banks are racing against the clock to ensure that the Bank of Spain approves their internal risk coverage models, including foreclosed assets, before the end of December, which, according to several sources, would bring some relief in terms of their new provisions. The circular also requires the banks to perform annual appraisals of their foreclosed real estate assets (…).

Original story: Cinco Días (by Ángeles Gonzalo Alconada)

Translation: Carmel Drake

BFA-Bankia Sells €645M Loan Portfolio

4 January 2016 – Expansión

As a result of this operation, the entity has reduced its doubtful debt balance by €414.3 million (€410.5 million relates to Bankia and €3.8 million relates to BFA).

BFA-Bankia has sold a loan portfolio amounting to €645.1 million. All of the loans had been granted to the business sector and some had been secured by real estate collateral, according to a statement issued by the group on Tuesday 22 December 2015.

Through this operation, BFA-Bankia was seeking to achieve two objectives, namely: to increase liquidity and free up resources to grant new loans; and to reduce its default rate by selling off doubtful debts.

In fact, with the sale of this portfolio, the group has reduced its doubtful loan balance by €414.3 million, of which €410.5 million relates to Bankia and €3.8 million to BFA.

Of the total loan portfolio sold, €564.3 million came from Bankia’s balance sheet and another €80.8 million from BFA’s.

The group explained that this operation will have a “minimal (positive) impact” in terms of capital and that, to maximise the price obtained, the sale has been conducted as a competitive process between “first tier” institutional investors and financial entities.

“The entity is continuing to move forward with its commitment to divest all of its non-strategic assets”, the group said.

Original story: Expansión

Translation: Carmel Drake