BBVA Finalises Transfer of 80% of its Spanish Real Estate Business to Cerberus

11 October 2018

The bank chaired by Francisco González, who announced the operation at the end of November of last year, stated that this “will not have a significant effect” on the bank’s profits or its solvency ratios. The joint venture between BBVA and Cerberus has been dubbed Divarian.

On Wednesday, BBVA finalised the transfer of the bulk of its real estate business in Spain to the US fund Cerberus, contingent on “obtaining the necessary authorisations.”

The transaction, which the bank announced on November 29, has allowed the institution to free itself from 80% of its exposure to the property sector in a single stroke, transferring 13 of the 17.8 billion euros gross of its holdings of real estate and loans to developers to Cerberus. The bank will maintain the remaining €4.8 billion in its balance sheet.

The portfolio, which Cerberus acquired, is valued at around 5 billion euros and result in a gain of roughly four billion euros for BBVA, though the final price is subject to “the effective transfer of some real estate assets.”

The bank structured the operation through the creation of a company called Divarian Property, to which the bank transferred its real estate business in Spain. BBVA has subsequently sold 80% of Divarian to Cerberus, retaining the remaining 20%. The assets that the bank transferred to the US fund “included both the real estate assets and the employees necessary for the management of the business.”

Drastic reduction of exposure to real estate sector

The bank stressed that “this operation marks a milestone in the BBVA Group’s strategy to eliminate its exposure to the property market almost completely.” The CEO and future president of the entity, Carlos Torres, stated when the deal was announced last November, that “it significantly reduces our exposure to an activity outside our core business and allows us to undergird our process of transformation.”

In 2017, BBVA recorded losses of 501 million euros stemming from the real estate sector and expects these red numbers to be reduced by 80% this year. Likewise, it estimates that as of 2019, the contribution of this area to the financial institution’s results will not be “relevant.”

The group chaired by Francisco González added that this operation “will not have a significant effect on the attributable profit of the BBVA Group, nor on the fully loaded CET1 capital ratio.”

In the last two years, the bank has been particularly active in the divestment of assets linked to the property sector. Among the bank’s most important operations were the sale of a portfolio of almost 3,500 properties and a lot of 14 office buildings, each with a gross book value of about 300 million euros.

Original Story: Expansion – J.D.

Photo: Francisco Rodríguez / Expansión

Translation: Richard Turner

Popular Plans To Create Its Own Bad Bank

7 October 2015 – El Confidencial

Banco Popular is trying to shed weight in leaps and bounds given its enormous exposure to property. To this end, it has made contact with the Ministry of Economy and the Bank of Spain with a view to creating its own real estate bad bank, as a prelude to carving out (and transferring) a portfolio of its own assets worth no less than €5,000 million. The operation would represent a significant easing of pressure in the face of the new capital requirements imposed by the European Central Bank, since it would allow an effective reduction in the volume of risk-weighted assets (RWA) on the institution’s balance sheet.

The creation of the future bank bad aims to establish a clear dividing line between the activities of the financial business and those relating to unexpected operations that Banco Popular has had to assume as a result of the crisis. The entity has accumulated property amounting to more than €16,000 million and wants to take advantage of the current recovery in the market to launch an independent company that would be managed by renowned experts and would be completely detached from the bank led by Ángel Ron (pictured above).

Initially, Banco Popular’s shareholders will be the owners of the new real estate subsidiary, but the project involves a carve-out plan and the external financing of the eventual bad bank, which would ultimately ensure that the majority of its financial liabilities were placed in the hands of external investors. In recent weeks, the operation has been presented to the various supervisory bodies, including the Bank of Spain and the ECB. The decision by the Ministry of Economy will be instrumental when it comes to the approval of any agreement, which in any case, would have to be endorsed by Banco Popular’s Board of Directors and General Shareholders’ Meeting in the coming months.

The release of assets worth €5,000 million would allow the entity to reduce its risk profiles with a view to future stress tests and would diminish the volume of debt it holds, at the same time as increasing its profitability. Banco Popular hopes that it would also improve its rating in the market, which would help to reduce its financing costs at a particularly critical time for the banking sector, in the context of the dramatic fall in interest margins. The operation would also guarantee that the bank could maintain the new capital ratios required by the ECB; these have now been established for Banco Popular at 10.6%, including 1.4 points of deferred tax assets (DTA).

The definition of a new business structure in the real estate segment, with its own independent and specialised governing bodies, would provide a different way of managing the business with its own distribution channels that would not be affected by the restrictions imposed on financial activities. At the end of 2013, Banco Popular transferred most of the share capital it held in Aliseda, its real estate manager, to the US firms Värde Partners and Kennedy Wilson, in an operation that generated profits of more than €700 million for the bank. Soon after, it also sold 51% of its credit card business to Värde for a profit of €400 million.

The proposal now on the table is much more ambitious for the bank from a strategic point of view, given that it is seeking to permanently deconsolidate some of its least liquid assets. The entity has not ruled out the option of constituting a Socimi…but that is not its preferred choice. (…). The aim is to ensure a project that is financially neutral for Banco Popular, at least in the beginning, and that eventually reduces the clean-up requirements left over from the property crisis. (…).

Original story: El Confidencial (by José Antonio Navas)

Translation: Carmel Drake