Project Makalu: Sabadell Puts €2.5bn Portfolio Up For Sale

21 March 2018 – Vozpópuli

Banco Sabadell is stepping on the accelerator to complete its balance sheet clean up as soon as possible. After months of negotiations with the Deposit Guarantee Fund (FGD), the Catalan entity has decided to place on the market its first large portfolio proceeding from CAM’s Asset Protection Scheme (EPA). In this way, it has distributed information to investors about Project Makalu, comprising €2.5 billion in assets from the former Alicante-based savings bank, according to financial sources consulted by Vozpópuli.

This operation comprises foreclosed assets and unpaid loans from companies and individuals covered by the EPA. It follows another portfolio that has been on the market for a few days, Project Galerna, comprising €900 million in non-performing loans.

KPMG is advising Sabadell on both operations, which together comprise assets and loans worth €3.4 billion.

The group chaired by Josep Oliu has been negotiating with the FGD for months to try to kick-start these operations. The aim is that they will be followed by two more portfolios taking the total value of the assets for sale to €12 billion and whereby reset the entity’s real estate calculator. The issue is not simple because the sale of these loans may generate a hole for the Fund that would impact the State deficit.

Strategic plan

The Catalan entity announced at the recent launch of its strategic plan in London that it maintains the objective of reducing its exposure to problem assets at a rate of €2 billion per year. With the sale of Project Makalu alone it would more than exceed that goal.

The bank held €15.2 billion in problem assets at the end of 2017, but the forecasts indicate that that figure will fall below €9 billion by 2020: €4 billion in doubtful loans and €5 billion in foreclosed assets. And that is without taking into account the divestments that are now being worked on with the FGD.

Project Makalu is the fourth largest portfolio of problem assets ever to be put up for sale by a Spanish bank, behind only Popular’s Project Quasar, amounting to €30 billion, purchased by Blackstone; BBVA’s Project Marina, amounting to €13 billion, acquired by Cerberus; and Project Hercules, amounting to €6.4 billion in mortgages from Catalunya Banc, which was bought by Blackstone.

Meanwhile, Project Galerna is similar to Project Gregal, which Sabadell sold less than a year ago to three funds: Grove, D. E. Shaw and Lindorff. That portfolio comprised loans linked to consumers, without real estate guarantees, which had already been fully written off, and so all of the proceeds from the sale were recorded directly as gains.

Precedents

Besides Gregal, Sabadell closed two other major operations last year: Normandy, comprising €950 million in property developer loans, which was acquired by Oaktree, and which also proceeded from CAM’s EPA; and Voyager, comprising €800 million, which was purchased by the largest pension fund in Canada.

The latest operation launched by Sabadell joins others recently placed on the market by Sareb, BBVA, Cajamar and Kutxabank.

Original story: Vozpópuli (by Jorge Zuloaga)

Translation: Carmel Drake

BBVA & Sabadell Hold Delicate Negotiations with the FGD to Sell Their Assets

5 February 2018 – Expansión

BBVA and Sabadell want to remove from their balance sheets the damaged real estate assets that they still own as a result of their acquisitions of Unnim and CAM, respectively. Those assets, which have a book value of around €16 billion in total, are temporarily protected by an Asset Protection Scheme (EPA), which, was granted at the time by the Deposit Guarantee Fund (FGD) so that the two banks would take on the business of the former savings banks, which had filed for bankruptcy. The negotiations that the two banks are now holding with the FGD share significant difficulties that cannot be solved easily, although they also have notable differences.

The European Central Bank has been putting pressure on the supervised entities to remove any damaged assets that they still own from their balance sheets, as soon as possible, because it understands that their maintenance reduces the banks’ ability to make profits and lets the doubts continue to hang over the real health of the entities. Now that the ECB considers that the worst of the crisis is over and that the banks are reasonably capitalised, it wants to clear up all the doubts. He has granted a period of five years for these problems to be resolved, although, in reality, it wants them to be sorted in a shorter timeframe: within three years.

When it acquired Popular, Santander launched a procedure to remove all of the real estate assets of its subsidiary from the balance sheet, by reaching an agreement with Blackstone to create a mixed company, in which the US fund holds the majority stake and where Santander has parked assets with a theoretical value of €30 billion. Liberbank has done the same, for a much small sum, retaining just 10% of the capital in its new company.

Meanwhile, BBVA has reached an agreement with Cerberus to transfer €13 billion to a company in which the bank will hold a 20% stake. Of those assets, a significant part, around €4 billion, correspond to assets proceeding from Unnim, which have a guarantee from the FGD for 80% of the losses that may be incurred at the time of their sale.

Meanwhile, Sabadell wants to divest assets worth €12 billion, which sit in a portfolio that is still subject to an EPA that will end in 2021, with the same guarantees as BBVA’s. The difference in the size of the two portfolios is clear.

That is where the problem arises. To close the operation, the FGD needs to accept that it will assume the losses incurred at the time of the sales. And even though its resources have been contributed exclusively by the financial institutions themselves, the public body does not have sufficient funds to assume those losses and whereby avoid grounds for dissolution.

Differences

In reality, the portfolio proceeding from Unnim does not cause excessive problems for several reasons. Firstly, it is smaller and, therefore, the loss to be assumed is considerably reduced. Moreover, according to sources in the know, the FGD has already recognised a coverage for those assets that is pretty close to the market value at which they could be sold (…).

The case of Sabadell, however, is different because the size of its protected portfolio is much larger. It started off at €22 billion and now amounts to just over half, around €12 billion. Sabadell considers that the real value of its assets is approximately half their theoretical value (…) but the FGD (…) maintains that the provisioning need is much lower, around 35% of the book value of those assets.

The difference in criteria between the two parties is important. In figures, it means that there is almost €1.8 billion that separates them and that, of that amount, if it is confirmed in the end, the FGD would have to assume almost €1.5 billion. That would be impossible in the current conditions, because it would mean that the body that guarantees the deposits of banking clients up to €100,000, would have to declare itself bankrupt or, as it has done on other occasions, impose an extraordinary surcharge on its shareholders, domestic entities, to balance its accounts and cover the hole (…).

A solution

But, on the other hand, the FGD is also interested in closing the chapter on asset protection schemes as soon as possible because, until that happens, it will be very difficult to progress with the construction of a European deposit guarantee fund, which is the third leg of the banking union. Indeed, it is not being built precisely because of reluctance being shown by the countries in the north to assume the problems of the past (…).

For this reason, sources close to the conversations confirm that they are now focusing on a possible solution that goes beyond the current moment. The FGD may be interested in reaching an agreement that would entail the possibility of accounting for the losses not in a single year, but rather over a longer period of time, possibly three years. The next few weeks are important because the authorities want to close the conversations before the end of the month.

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Sabadell Considers Selling €1.8 bn Portfolio Whilst it Negotiates with FGD

1 February 2018 – Voz Pópuli

Banco Sabadell is preparing an artillery of divestments over the coming months. The entity chaired by Josep Oliu (pictured above) has been sounding out the market for several weeks now regarding the launch of what would be its largest sale of problem assets to date, worth €1.8 billion, according to financial sources consulted by Vozpópuli.

This operation, which still needs to be approved by the bank’s Board of Directors, would be the precursor to a mega-operation amounting to €12 billion that the entity is considering launching over the next few months, according to Expansión. Sabadell has three mandates granted to launch these divestments in 2018 with Deloitte, KPMG and Alantra.

Nevertheless, these sales have been held up by the Management Committee of the Deposit Guarantee Fund (FGD). The €12 billion that Sabadell wants to sell are precisely those covered by the Asset Protection Scheme (EPA) granted by the semi-public fund during the sale of CAM.

The Management Committee, whose members include bankers from some of Sabadell’s competitor firms, is questioning the sale of the €12 billion because of the hole it would cause in its own accounts. The FGD held equity funds of €1.6 billion at the end of 2016. The same thing is happening with BBVA. In that case, the FGD is considering whether to approve the accelerated sale of assets proceeding from Unnim’s EPA.

Two positions

This story is about two very different positions. On the one hand, Sabadell and BBVA want to bulk sell all of the problem assets that they inherited from the purchases of CAM and Unnim, respectively, in one go. In terms of the danger posed by the end of the EPA, they know that, like happened to Liberbank, when the guarantees end, the unsold assets will affect their capital ratios, by raising the denominator (APRs).

Meanwhile, the FGD is studying the impact that these operations may have and whether the contracts signed at the time allow such accelerated divestments.

Sabadell was one of the most active entities in the sale of problem portfolios last year, with the sale of Project Normandy to Oaktree and Project Voyager to the largest pension fund in Canada.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Sabadell Engages Alantra, KPMG & PwC To Sell Its Toxic Assets

17 November 2017 – Expansión

Sabadell has decided to go one step further in its strategy to clean up its balance sheet. To this end, the entity has engaged Alantra, KPMG and PwC to sell the real estate assets that it inherited during the crisis, which amount to approximately €12,000 million. The plan involves dividing that volume of doubtful loans into three different portfolios, with the aim of facilitating their digestion in the market. It would be the largest portfolio sale ever carried out by the entity, which has divested €1,750 million in toxic loans and assets so far this year.

Financial sources say that the firms engaged to sell the portfolio have already started to sound out the market in search of potential buyers. If everything follows the agreed timetable, the operation will come onto the market during the first few months of 2018 with the intention of being closed at some point next year. The bank itself declined to comment on the news.

Protection of assets

Most of the toxic property that Sabadell plans to sell was inherited from Caja de Ahorros del Mediterráneo (CAM) and was acquired in the summer of 2012 under an Asset Protection Scheme (EPA) capable of covering losses of up to €16,610 million. The EPA, which is valid for up to 10 years following the purchase, covers Sabadell for 80% of the loses incurred on the savings bank’s asset portfolio, whose value at the time amounted to €24,644 million. The potential cost of those losses is assumed by the Deposit Guarantee Fund (FDG).

Now, five years after the purchase of CAM, Sabadell has managed to divest 51% of the doubtful loans. This means that €11,940 million still remain on the bank’s balance sheet.

Sources in the market indicate that pressure from the Bank of Spain for entities to clean up their balance sheets, especially those linked to EPAs, has been one of the reasons that has led Sabadell to launch this operation. The supervisor wants to liquidate these agreements to free the FGD from further charges and to open the door to a new European fund. This comes in addition to the renewed investor appetite towards these types of assets.

“We have seen that there is significant demand from international funds in relation to the banks’ portfolios of non-performing assets. Nevertheless, the supply is immense and it is important to choose the timing very carefully to avoid having to offer excessive discounts”, explain the financial sources.

General trend

In addition to Sabadell, other Spanish entities have stepped on the accelerator with the sale of toxic assets in 2017. So far this year, 10 entities have managed to divest up to €36,458 million. It should be noted that the aforementioned figure has been significantly impacted by the macro-operation undertaken by Santander, which sold 51% of Popular’s real estate, worth €30,000 million, to Blackstone.

In fact, Sabadell’s effort to reduce its doubtful loans has been one of the arguments most used by analysts to support the significant rise in share prices on the stock market in its reports. Before the crisis in Cataluña started to undermine the confidence in the markets, the entity saw an increase of up to 49% in its share price, to €1.94.

Original story: Expansión (by Andrés Stumpf)

Translation: Carmel Drake

Sabadell Still Struggling To Digest CAM’s RE

30 January 2017 – El Mundo

Real estate is continuing to weigh down heavily on Banco Sabadell’s balance sheet, above all due to the complications involved in digesting the enormous portfolio of properties that it inherited from CAM, most of which are located in the Community of Valencia. The entity is selling more properties than ever, its revenues have soared, the number of assets being sold exceeds the number of properties being foreclosed and the prices at which it is selling its real estate are continuing to rise, however, the overall impact of the initiative is still generating losses, albeit for the time being. Specifically, Sabadell’s real estate asset business unit lost €908.4 million in 2016, according to the Group’s annual results, which were presented in Barcelona on Friday.

Those losses already reflect the effect of the Asset Protection Scheme (EPA), which the entity relies on to cover 80% of the losses generated by CAM’s real estate portfolio.

The Catalan bank still holds €9,035 million in real estate assets on its balance sheet, which represents just 2% less than at the end of 2015. Most of those properties (land, buildings, homes etc) belong to the stock of loans that it inherited from CAM and are located in that former entity’s areas of operation, in other words, the Community of Valencia and Murcia. Of those €9,035 million real estate assets, €7,166 million stem from foreclosed assets and embargos of construction companies and property developers, which were unable to repay their loans, and of those €3,851 million corresponds to land. In other words, 42% of the entity’s stock is land, the least liquid asset.

Sabadell owns finished homes worth €1,377 million. Moreover, its properties from unpaid mortgages amount to €1,918 million.

Overall, the bank has managed to offset the mass entry of properties onto its balance sheet with an intensification of sales. For example, it closed 2016 with the entry of properties (homes, land, premises, etc) worth €384 million, whilst the sale and divestment of these assets amounted to €457 million. In other words, it is now selling more than it is taking on.

Solvia is working hard too

In addition, Solvia, the bank’s real estate subsidiary, which has its operations centre in Alicante, sold assets worth €1,557 million last year, up by 40% compared to the previous year, with 14,553 operations, i.e. 27% more. The entity said that “the reduction in the sales discount and the overall increase in prices are signs of the recovery”. Last year, Solvia relied on sales of large asset portfolios to institutional investors to improve its ratios. Not in vain, 22% of its sales are made to that kind of buyer. (…).

Original story: El Mundo (by F.D.G.)

Translation: Carmel Drake

Project Normandy: Sabadell Sells NPL Portfolio To Oaktree

9 January 2017 – Catalunya Press

Oaktree, the US fund has won the latest auction of problem assets by Banco Sabadell, as part of Project Normandy. The US fund will pay €250 million for a portfolio of overdue real estate loans worth €950 million.

Oaktree will acquire the assets for a discount of between 25% and 30%, however, the finishing touches still need to be agreed for the operation, which means that it may not be formalised for another month or so.

Oaktree will absorb 500 loans to property developers, amongst others, than Sabadell inherited when it purchased CAM. The loans are secured by property developments, retail premises and land, but their borrowers ran aground following the outbreak of the crisis. Two different strategies are now being pursued: restructure the loan in exchange for a reduction below the price paid (above 25-30%); and/or acquire the assets by legal means and join forces with local property developers (in some cases the same developers whose assets are being repossessed) to carry out the project.

Thanks to Project Normandy, Sabadell has cleaned up more than €8,000 million of problem assets from its balance sheet, whereby reducing the balance from €26,000 million to less than €18,000 million.

In addition to Banco Sabadell, other entities such as Sareb have also closed divestments in recent weeks.

Original story: Catalunya Press

Translation: Carmel Drake

Project Traveler: Sabadell Puts A €500M RE Portfolio Up For Sale

14 October 2016 – Voz Pópuli

Banco Sabadell has taken the lead in the Spanish banking sector once again with the sale of its toxic assets. Over the last few days, the Catalan entity has distributed a teaser (information brochure for investors) detailing a new real estate operation: Project Traveler. The portfolio contains 30 hotels, 30 work in progress real estate developments and other debts to SMEs, according to financial sources.

The operation involves collateral worth €500 million and it is already generating a lot of interest amongst international funds.

With this latest deal, Sabadell now has €1,500 million up for sale, given that straight after the summer, it put Project Normandy on the market, through which it wants to sell doubtful debt amounting to €1,000 million. Following the receipt of non-binding offers, that operation has recently entered its final phase, which will last for around a month.

The entity chaired by Josep Oliu has been one of the most active in recent years in terms of selling problem assets. Sabadell wants to reduce the real estate portfolio that it mainly inherited from the acquisitions that it made during the crisis in Spain, such as CAM, Caixa Penedès and Banco Guizpuzcoano, as quickly as possible.

According to the most recently published figures, as at June 2016, the bank held €19,900 million in problem assets, having reduced that balance by €6,000 million over the last two years. Along with portfolio sales, one of the key elements of the bank’s strategy is the work being performed by its real estate arm Solvia. That entity sells homes through the bank’s network and agents, and is responsible for managing overdue debt.

Project Traveler has attracted attention in the market because it is the second portfolio containing hotels to come onto the market in 2016, after Project Sun, being sold by CaixaBank, which is in the very final stages of negotiation.

Other operations

After the short break at the end of July due to the impact of Brexit on the market, the sale of portfolios has resumed once again in recent weeks. The first operation involved Abanca, which sold €300 million in unpaid mortgages to KKR; and then came Sareb’s return to the market – it is offering investors portfolios worth more than €1,000 million, after a year without any operations following the introduction of the Bank of Spain’s accounting circular.

For the large opportunistic funds, such as Cerberus, Blackstone, Apollo, Bain Capital – formerly Sankaty – and TPG, and the large investment banks, such as Goldman Sachs and Bank of America, these operations represent one of the best ways of making money in Spain at the moment. (…).

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Sareb Sells 25% More Tourist Homes Than It Had Forecast

5 September 2016 – El Mundo

This summer, Sareb has taken advantage of the fact that savers have limited alternative investment options and that its assets are well priced…to boost property sales.  (…).

Unlike other commercial companies, the aim of Sareb (in which the State holds a 45% stake) is to reduce its balance sheet by selling off all of its assets, which primarily comprise non-performing or risky real estate loans and involve more property developers than individual borrowers, inherited from the former troubled banks.

In this case, the typical clients of the company chaired by Jaime Echegoyen (pictured above) are large financial investors specialising in generating profits from assets that the banks are unable to maintain. Nevertheless, with the activation of demand in the second-hand real estate sector, the bad bank is trying to take advantage of every opportunity and in April it put 2,237 homes up for sale (to private investors) along the coast.

The commercial objective is much lower and the bad bank does not intend to liquidate 100% of its supply. Nevertheless, between sales and reservations, the company has managed to offload 330 homes this summer for a total amount of €31 million, which represents a 25% increase with respect to its budget. The company has not revealed the prices at which it acquired these assets from their original owners.

Sareb, which uses sales companies belonging to or related to Bankia, Banco Sabadell, CaixaBank and Santander, will extend the campaign that it launched in April by at least another month to try and maximise the returns from savers interested in acquiring properties at good prices. The prices of the homes put up for sale in 20 provinces across nine autonomous regions started at €32,000 for a flat in Torrevieja (Alicante) and went up to €866,000 for a 342 sqm family home in Calviá (Palma de Mallorca) with five bedrooms, four bathrooms and a swimming pool.

Neither of those properties have been sold yet. Half of the homes in the portfolio are located in Valencia, where several now extinct entities, such as Bancaja (Bankia) and Caja de Ahorros del Mediterráneo (CAM, nowadays part of Banco Sabadell) undertook very intense activity in the run up to the burst of the real estate bubble. Specifically, the province with the highest number of properties up for sale is Castellón, with 791 homes. (…).

Last year, Sareb owned 105,000 properties, 80,000 loans and 375,000 collateral properties. Nevertheless, the Bank of Spain issued new regulations, which come into force in October, requiring the bad bank to individually value each asset on a regular basis using a methodology validated by the supervisor; that forced the bad bank to update the value of all of its assets. Sareb was thus required to perform an additional clean up amounting to €2,044 million, an operation that followed other similar measures already undertaken in 2013 and 2014, amounting to €968 million.

For that reason, the entity needed a recapitalisation, which its shareholders undertook converting €2,170 million of subordinated debt into capital, which it used to finance the acquisition of toxic assets from the rescued banks. (…).

Original story: El Mundo

Translation: Carmel Drake

Banks Still Hold €69,000M In Problem RE Assets

16 August 2016 – Capital Madrid

(…). The seven largest banks, which are all listed on the Ibex, still hold almost €69,000 million in problem real estate assets on their balance sheets, a figure that increases to well above €75,000 million if we extend the scope to include all of the major entities. And those same entities refuse to put their assets on the market so as to not push prices down any further.

Neither the sales made at a loss a few years ago, nor the toxic asset transfers made by some entities to Sareb, have been sufficient to remove this hindrance from the entities’ balance sheets, which weighs down on their results, as well as on their default rates.

The excesses committed by the majority of the banks in the real estate sector will still take a while to be cleansed. Proof of this is the fact that the balance sheets of the seven larges entities still contain foreclosed assets amounting to €68,734 million, a figure that increases to more than €75,000 million if we take into account the most representative banks. (….).

Of the banks on the Ibex, Sabadell leads the ranking by volume of foreclosed assets, with €19,900 million, despite having reduced its balance by 14.2% with respect to the first half of 2015 and having increased its sales through Solvia, its real estate subsidiary. That is because the integration of CAM still weighs down heavily on the balance sheet of the group chaired by José Oliu (pictured above).

Santander’s real estate activity has generated €16,000 million of assets, of which €6,000 million relate to Metrovacesa. The group calculates that €3,800 million of its assets have been foreclosed, the same level as a year ago, along with €2,000 million in overdue loans. (…).

BBVA is still generating losses in its real estate business, amounting to €209 million. The group chaired by Francisco González (FG) still holds €11,400 million in foreclosed assets, which represents a reduction of 13.1% compared with a year ago, but its default rate has risen to 57.1%, when at the end of the first quarter, it stood at just 50.5%. (…).

Meanwhile, the group chaired by Ángel Ron (Banco Popular) still holds more than €11,000 million in foreclosed assets on its balance sheet and the creation of its real estate area does not represent the creation of a bad bank, as Popular’s Finance Director, Francisco Sancha, explained during the presentation of the bank’s half year results.

CaixaBank managed to reduce its foreclosed asset balance to just over €7,000 million during the first half of the year. The entity combined the sale of properties with the rental of properties, although its default rate was also weakened by the weight of property.

Bankinter is enjoying the least problematic time, with just €554 million in foreclosed assets, almost half of which are residential properties, whilst land accounts for 27%. Its lower exposure to the real estate sector enabled it to navigate better than its competitors through the fallout from the burst of the real estate bubble.

Original story: Capital Madrid (by José Luis Marco)

Translation: Carmel Drake

Sabadell Puts €1,300M NPL Portfolio Up For Sale

20 April 2016 – Expansión

Sabadell has become the most determined Spanish entity when it comes to trying to clean up its balance sheet. The entity chaired by Josep Oliu (pictured above) has two portfolios up for sale through which it hopes to sell off €1,300 million of non-performing assets. Moreover, it may soon add another €1,700 million portfolio, if a large deal that the entity is currently preparing eventually goes up for sale. In total, €3,000 million, of which €2,200 million comprises doubtful loans linked to real estate developments, and which represent around one sixth of its doubtful assets in Spain. The remainder, €800 million, relate to non-performing consumer loans.

The latest divestment to come onto the market is Project Pirene, advised by KPMG, containing €460 million of problem assets linked to property developers, according to sources consulted at international funds. Unlike some of its recent operations, this one originates from Sabadell’s own business, and not from CAM, Caixa Penedès or Banco Gallego.

This operation combines Project Corus, with €800 million non-performing consumer loans; and Project Normandy, under assessment, with €1,700 million non-performing real estate loans, according to El Confidencial.

The Catalan group hopes to close the first two operations within the next two months, so that they may be accounted for in its financial statements for the first half of the year. Meanwhile, Project Normandy may be delayed somewhat due to its large size. In fact, the operation would be one of the largest seen in Spain in recent years. The largest, Project Big Bang, containing €4,800 million in foreclosed assets, was suspended by Bankia due to its complexity and the large discounts being demanded by the funds.

Sabadell was one of the Spanish entities that reduced its default rate by the most during 2015. Following the purchase of the British bank TSB, its default rate fell by almost five percentage points. If we exclude that acquisition, the rate fell by almost three percentage points, from 12.74% to 9.86%. In total, the entity manages €21,500 million of problem assets, with a coverage ratio of 53% for its doubtful debts and of 44% for its real estate assets.

Besides these operations launched by Sabadell, only a handful of other entities have decided to divest their problem assets so far in 2016, namely Cajamar, Bankia and BBVA. Popular announced that it would be very active, but it has not yet put any portfolios on the market.

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake