Popular Seeks To Restore Credibility By Re-Appraising Its 40,000 RE Assets

9 May 2017 – Expansión

Before the summer, the top executives of Banco Popular will have answers to the two questions that the President of the bank, Emilio Saracho, said were essential to resolve in order to define the bank’s future, namely: What are the requirements for new provisions? and Which path should the entity follow to achieve the minimum regulatory capital requirements that the supervisory authorities are going to demand of it from 1 January 2019 onwards? According to the CEO of the bank, Ignacio Sánchez-Asián, speaking at the presentation of the Q1 results, Popular is currently a long way from achieving those requirements.

Popular is conducting a complete review of the valuation of the 40,000 real estate assets that feature on its balance sheet, which have a combined gross value of just over €36,000 million. The existing provisions have to be deducted from that amount, and they represent around 45% of the book value. According to Sánchez-Asiaín, once the review, which will take several weeks, has been completed, the entity will have to publish the amount of provisions that it considers still have to be recognised on an extraordinary basis. And then, Management will be able to calculate the capital requirements needed to meet those provisions and to place the entity at the required levels in terms of own funds.

However, the situation is not easy because, according to the CEO, as a result of the new appraisals carried out by the independent experts of an unquantified number of the c. 40,000 assets, the bank has already had to recognise unforeseen provisions in the first quarter amounting to €310 million, to increase the coverage of the assets re-appraised so far.

Restoring credibility

The bank does not want to give specific figures about the scope of the new provisions, so as not to create expectations that it then is unable to fulfil because, according to its CEO, the entity’s key priority is to restore its credibility in the market (…).

Sánchez-Asiaín acknowledges that the bank “will have capital requirements in the future”, whose final quantification will depend on the performance of the traditional business, which worsened during the first quarter of this year compared to a year ago; it will also have provision requirements, which the entity’s operating profit will not cover, and it also plans to sell non-strategic assets, which it may carry out this year. “Whether or not we manage to sell the assets will depend on the prices being offered”, said Sánchez-Asiaín.

Capital increase

The fact that the bank is going to need capital is unquestionable because, at the moment, its CET1 does not amount to 8% even at full load, and that percentage will be significantly higher as of 1 January 2019. As such, even if the bank substantially improves its turnover and sells everything that it can, it will not reach that figure by itself. For this reason, at the General Shareholders’ Meeting, Saracho said that there will be a capital increase or a corporate operation or a combination of both (in the near future).

The CEO said that “investors are asking about the capital increase”, and he added that, in his personal opinion and if there is an increase in the end, then it should be aimed at institutional investors “to have credibility in the market”. Does that mean that there will not be a retail tranche? He failed to answer that question.

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Sareb Plans To Return €6,000M To Its Shareholders

16 June 2016 – Expansión

Sareb has a business plan on the table that involves returning its shareholders all of their investments, including an annualised return of between 1% and 2%. According to the explanation provided yesterday by the Chairman of the company, Jaime Echegoyen, these plans involve paying back €6,000 million to the banks and insurance companies that hold its share capital, together with the Fund for Restructuring (the Frob).

Between 2012 and 2013, those shareholders invested €4,800 million in Sareb – €1,200 million in share capital and €3,600 million in subordinated debt. The investors have already written off around three quarters of that amount.

Echegoyen, who was speaking yesterday at an event organised by UIMP, Apie and BBVA, did not specify whether the €6,000 million would be returned in cash or by handing over assets that the bad bank has not been able to sell by the time it has to be wound up, November 2027.

The Chairman of Sareb praised the role of the entities that supported the creation of the company, all of the major banks with the exception of BBVA. (…). The company’s most senior executive said that it was “time to help the whole country” (…).

Podemos’ plans

Echegoyen also made reference to the possibility that Sareb may be converted into a public housing stock, as proposed by (the political party) Podemos, something that in his opinion would have serious consequences for the Spanish economy.

“I don’t think we should forget that Sareb owes €43,000 million. If anyone wants to do anyhing with Sareb, they would have to deal with Parliament first and then Brussels”, he explained, before adding that “those €43,000 million would mean raising the deficit by 4 percentage points”.

Meanwhile, Sareb’s Chairman reported that the company has now sold 35,000 properties since it was created, although the rate of sales has decelerated slightly in 2016, to 25 homes per day, compared with the average of 27 since 2013. Despite that, he said that “we are performing in line with budget” and he maintained the goal to “stop losing money in 2017”.

This slight slowdown has happened despite the fact that the real estate market is experiencing a “sweet moment”, according to Echegoyen. This is reflected by the fact that new, more conservative, investors, “such as Socimis, family offices, insurance companies and private banks have covered the gap left by the opportunists”.

The importance of property

According to the executive, low interest rates are encouraging investors to pay attention to real estate assets. “Property is intrinsic to human beings, above all Spaniards”, he said. “Banks are still granting finance, but are no longer allowing any nonsense”, he added.

The Chairman of Sareb acknowledges that competition is being felt from other banks when it comes to selling properties, although he pointed out that the financial institutions are in more of a hurry to sell given the pressures (they face) from the stock market and capital requirements.

“We have time, a trump card, on our side, which lasts for the next 12 years. Furthermore, we are never going to be listed on the stock exchange, which means that we are not subject to pressure from the financial markets”, he noted.

Original story: Expansión (by J. Z. and S. A.)

Translation: Carmel Drake

Sareb Expects To Pay Its Bondholders A €1,000M Coupon

13 May 2016 – Expansión

Sareb’s shareholders are fully aware that they will never receive any dividends. Neither the private institutions, mostly banks and insurance companies, which own 55% of the so-called bad bank; nor the State, which controls the remaining 45% stake through the FROB (‘Fondo de Reestructuración Ordenada Bancaria’ or Fund for the Orderly Restructuring of the Banking Sector) expect to receive any returns on their capital, in accordance with the company’s original business plan.

But the institution led by Jaime Echegoyen (pictured above) plans to repay them by other means. Sareb is hoping to pay its shareholders a coupon of €1,000 million, over its remaining twelve years of life, in return for the subordinated debt that they subscribed to, to get it on its feet, according to sources close to the bad bank.

In order to provide the company with sufficient own funds, the shareholders subscribed to convertible subordinated bonds amounting to €3,600 million, which were added to the €1,200 million of pure capital that had been contributed by its investors, to take its own funds to €4,800 million.

Accounting circular

The new accounting framework established by the Bank of Spain, which came into force last year, forced Sareb to individually appraise all of its assets and adjust them to reflect market value and, in this way, to undertake a thorough clean up (of its balance sheet), which resulted in significant losses and additional capital requirements.

To cover those without resorting to a capital increase, the company capitalised debt amounting to €2,170 million. In this way, only the remaining subordinated debt holders (who hold €1,429 million) will end up receiving the coupon.

Before the shareholders receive the interest amounting to 8% p.a., Sareb will have to generate sufficient consolidated profit before tax and cash and, also, have paid the interest rates on the senior bonds that it issued to the former rescued savings banks in return for the foreclosed assets and property developer loans that they transferred to it.

Two annual payments

After the shock of the accounting circular, the so-called bad bank is confident that it will be able to leave behind its losses and break even in 2017, before generating profits in 2018, the date when the bondholders will begin to receive the annual coupon for the first time.

Nevertheless, their remuneration would not necessarily be reduced in the event that Sareb has to wait until 2019 generating any profits, given that the amount of interest accrued in 2018 would be rolled into the receipt for the following year. Thus, on the payment date, they could receive the annual payment for the current year as well as for the previous year. They may not receive more than two payments.

Santander and CaixaBank

The conversion of debt into capital, approved by Sareb’s General Shareholders’ Meeting at the beginning of May, did not affect the subordinated debt stakes held by each one of the bondholders, most of whom are also shareholders. As such, and until the operation goes ahead, Santander is the largest private bondholder, with a 16.6% stake, amounting to €237 million.

The next largest bondholder is CaixaBank, which holds 12.2% of the debt, worth €174 million, followed by Sabadell, with a 6.6% stake (€94 million) and Popular, with a 5.7% stake (€81 million). Meanwhile, the State holds debt amounting to €656 million, through the 45.9% stake that it owns through the Frob.

Original story: Expansión (by A.Crespo and S.Arancibia)

Translation: Carmel Drake

Sareb’s Shareholders Approve €2,170M Subordinated Debt Conversion

9 May 2016 – El Economista

On Friday, Sareb’s General Shareholders’ Meeting approved the proposed conversion of €2,170 million of its subordinated debt into share capital.

Through this operation, Sareb addresses the capital requirements resulting from the new accounting framework, which entered into force last year, according to a statement made by the bad bank.

The entry into force of the new regulations required Sareb to individually value its assets, said the company. After an “intense” valuation process, it concluded that it should undertake a clean up process amounting to €2,044 million, in addition to the provisions (€968 million) already recognised in the last two years.

No more capital

A few months ago, the company announced that it would address the losses generated from this clean up effort using its own funds, without resorting to new capital contributions.

In this sense, the General Shareholders’ meeting has approved the conversion of subordinated debt amounting to €2,170 million into capital. Following this operation, Sareb’s own funds will amount to just €953 million and its subordinated debt will amount to €1,429 million.

Meanwhile, the General Shareholders’ Meeting also approved the appointment of Javier García-Carranza as a proprietary Director, representing Banco Santander. Carranza is the Deputy CEO and Head of Restructuring, Real Estate, Investments and Private Equity at the Cantabrian entity.

Original story: El Economista

Translation: Carmel Drake

Popular Puts RE Assets Worth €8,000M Up For Sale

20 January 2016 – El País

Banco Popular has made a commitment to investors and analysts to sell around €8,000 million in real estate assets that were foreclosed due to non-payment during the financial crisis. This amount represents approximately 30% of its bad bank, into which the entity led by Ángel Ron has placed the assets that have depreciated by the most and which are provisioned. In this way, the entity may be able to clean up its balance sheet.

Market sources believe that if Banco Popular ends up achieving this objective, it will generate profits of around €200 million, thanks to the recovery of provisions already recognised and the lower operating costs that will result from the disposal of such a large volume of properties. The entity declined to comment on its plans. The proposed real estate operation is seeking to change this negative trend, which reflects the doubts over its future.

The transaction will be divided into two parts: on the one hand, the entity led by Ángel Ron plans to set the branch network a target of selling €4,000 million of properties, which would require it to double the volume of sales recorded in 2014 and last year. The bank will try to take advantage of the improvement in the real estate market in recent months to avoid making losses on its sales.

On the other hand, Popular is negotiating with various real estate and vulture funds, regarding the creation of a special vehicle into which it would place €4,000 million of assets linked to property. The entity has not managed to close any agreement with these investors yet because the discount they are demanding is very high and it is not willing to accept such a reduction.

The perils of the stock exchange

Popular is the subject of numerous rumours about a possible takeover by one of the three largest entities (in Spain), which may be seeking to take advantage of its significant decline on the stock exchange. Nevertheless, “the entity complies fully with the (capital) requirements established by the supervisor”, according to an explanation provided by its managers in December, after figures were published showing that it complied with the ECB’s capital requirements.

Despite that, Popular’s share price has decreased by 23% in the last month and is trading at its lowest level for a year. The market value of its shares on the stock exchange amounts to just over €5,000 million, which makes it an attractive bank given its business model, and its significant penetration in the SMEs and retail markets. Popular’s share price is trading at a five year low.

Popular has always refused to participate in any operation in which it would lose control of the merged entity, but it has also admitted that anyone wishing to acquire the bank will have to pay a high premium to the shareholders. Meanwhile, the market is punishing its market capitalisation: Bankinter, which has assets amounting to around €60,000 million, compared with Popular’s €160,000 million, is worth more than Popular on the stock exchange. Bankinter’s market capitalisation amounts to around €5,400 million, i.e. around €400 million higher than Popular’s.

Original story: El País (by Iñigo de Barrón)

Translation: Carmel Drake

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