Sareb Still Faces Challenges Five Years After its Creation

27 February 2018 – Expansión

The bad bank was created with 200,000 toxic assets worth €50.8 billion, inherited from the rescued savings banks. In five years, it has divested 27% of that encumbrance. It has another ten years left to liquidate its remaining stock.

Just over five years ago, Sareb (…) was launched. The creation of the bad bank was made possible thanks to the participation of European funds in the bank rescue and the solidarity of the financial system, which had the capacity to resist the crisis and contribute its grain of sand to the process.

Sareb was created with private capital majority (contributed by the banks, with the exception of BBVA, which refused to participate, as well as insurance companies and a handful of real estate companies) and the remainder was provided by the State through the Frob, in such a way that any equity imbalances and losses that the new company would incur would not be accounted for in the public deficit (…).

The last five years have not exactly been a walk in the park for Sareb (…). Nevertheless, it has generated revenues from the sale of assets amounting to €12.9 billion, which have allowed it to cover its expenses, which, in addition to the cost of its 400 employees, involve: the payment of commissions to intermediary companies (€1.1 billion); the payment of interest (€4.0 billion (…)); taxes (€790 million (…)) and more than €400 million in maintenance costs and service charge payments.

The bad bank’s revenues proceed from the sale of its assets, whose composition has changed considerably since its creation. Currently, Sareb owns almost the same number of properties as it had at the beginning, but after having sold almost 65,000 assets. That is because some of the loans that were transferred to Sareb upon its creation have now been converted into properties through the execution of the guarantees that they secured. In this way, properties now account for 32% of the company’s total asset value, whilst the weight of loans has decreased from 80% to its current level of 68%. The entity’s assets have decreased by 27% to reach €36.9 billion and the debt issued by Sareb, which is guaranteed by the State, currently stands at €37.9 billion, down by 25%.

The company has generated positive margins during the course of its life, although it has only ever recorded losses. In 2016, the most recent period for which figures are available, its losses amounted to €663 million and, although its results for 2017 have not been published yet, the losses are expected to be similar. Reality has imposed itself on the initial business plans. Today, both the entity’s President, Jaime Echegoyen, and the company’s shareholders, understand that one possible objective would be for the entity to be liquidated within 10 years without having needed any new capital contributions and for some of the investment to be recovered, around 60%, with the remaining 40% having to be written off.

The President of Sareb understands that the company is fulfilling the basic purpose for which it was created, albeit with difficulties: the sale of damaged assets from the entities that received public aid, because, it does not have any other levers that would allow it to offset the possible losses that it would incur if it accelerated its sales.

Sareb only generates revenues from the sale of its assets and that is forcing it to adjust its sales prices a lot more so as not to incur losses. In this regard, it is totally different from the other financial institutions, for whom the damaged real estate assets account for only part of their balance sheets and, therefore, they can divest them at lower prices, since they receive other revenues that generate sufficient margins for them.

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Gov’t Approves New Mortgage Bill That Favours Borrowers

7 November 2017 – Inmodiario

The Government has approved the Mortgage Bill, which transposes the corresponding European Directive and seeks to increase the transparency of mortgage contracts, according to explanations provided by the Minister for the Economy, Industry and Competitiveness, Luis de Guindos (pictured below, left).

In terms of the transposition, De Guindos said that the legislation has opted for the alternatives that are most favourable for the mortgage holder in every case. In this way, commissions for the early repayment of variable rate loans will be reduced, and even cancelled from the fifth year onwards; a maximum commission (cap) will be set for fixed-rate loans, compared to the current situation where up to two commissions may be applied, one of which has no kind of limit.

Moreover, the legislation establishes the right of consumers to change the currency of a loan taken out in a foreign currency to the domestic currency or any other; plus it prohibits cross-selling – which obliges the consumer to contract a series of financial products as conditions to obtaining a mortgage – and it regulates the legal framework for mortgage brokers.

The Ministry of Economy has said that the bill is not limited to simply transposing the EU Directive, but also responds to legal rulings that have expressed the need for greater transparency in terms of mortgage regulation.

In this sense, the legislation facilitates the conversion of variable rate mortgages to fixed-rate products, for both new mortgages as well as those already underway. The commissions for making such a change will be cancelled from the third year and the notary and registration fees will be reduced.

Other changes mean that the lender must provide the client with detailed documentation about the mortgage, including the most “sensitive” clauses and scenarios showing the evolution of instalments. Moreover, the borrower will be entitled to receive free advice from the notary about the contents of the contract for seven days prior to signing.

The legislation also regulates the early repayment of loans, “in such a way that it avoids any kind of discretion when it comes to agreeing this clause”, according to Luis de Guindos. The requirement for a financial entity to be able to initiate the foreclosure of a mortgage is extended to nine unpaid monthly instalments or an amount that exceeds 2% of the capital granted during the first half of the mortgage term; and 4% or twelve unpaid instalments during the second half.

Original story: Inmodiario

Translation: Carmel Drake

PortAventura’s Owner May Buy TPG’s Stake In Servihabitat

30 November 2016 – Voz Populi

The real estate arm of CaixaBank, Servihabitat, is preparing for a possible change in its shareholders. The Italian private equity group Investindustrial (which is headquartered in Barcelona) is holding conversations with TPG regarding the possible acquisition of the 51% stake that the Texan fund owns in Servihabitat. For the time being, no offer has been put on the table, but several financial sources consulted are convinced that a deal will be reached soon and that the group, owned by the Bonomi family, is well positioned to take over the reins of the real estate company.

Investindustrial already has a lot of roots in Spain and above all in Cataluña. The same sources add that Carlo Bonomi, the CEO of the firm, has a good relationship with Isidro Fainé. Both groups completed one of the largest private equity operations between 2009 and 2012, with the purchase of the PortAventura park from Criteria for almost €200 million.

The fund created by the Bonomi family also controls the rental car company Goldcar in Spain and the ambulance firm Emeru. In recent years, it has held stakes in Applus, Euskatel and Recoletos, amongst others. In fact, Investindustrial was one of the groups that submitted a bid for the takeover of RCS (owner of Unidad Editorial), but it was pipped at the post by Cairo Communication.

The possible acquisition of a stake in Servihabitat comes at a time when the financial sector is rethinking its real estate partnerships: Santander has engaged Citi to handle its purchase of Altamira; Popular is negotiating with Värde Partners and Kennedy Wilson to regain control over Aliseda; and Servihabitat has also been the target of rumours in the market. Nevertheless, the sources consulted explain that the Catalan group does not want to regain ownership of 100% of its real estate company, but rather is looking for a new partner whose plans for Servihabitat fit better with its own vision than that of TPG.

This change in strategy has not arisen due to personal differences, but rather due to the new circumstances in the financial sector. When the banks sold their stakes in their real estate companies in 2013, they did so because they needed capital; and they were very successful in this regard. In the case of Servihabitat, TPG paid €310 million for its 51% stake.

Change in strategy

Nevertheless, with the passage of time, the banks are seeing a slowdown in the rate of property sales and are incurring expenses on their income statements as a result of all of the commissions that they are having to pay their property managers.

A priori, the investment in Servihabitat does not fit with the type of investments that Investindustrial usually undertakes. It traditionally backs sectors such as services, consumer and industrial. But, sources in the sector regard Servihabitat as a classic private equity investment, since it is a cash generating machine with potential to grow through corporate operations. In fact, Servihabitat is one of the candidates in the running to buy Portugal’s largest bad bank.

The company generated EBITDA of €111 million last year. Its consolidated profit amounted to almost €44 million.

Original story: Voz Populi (by Jorge Zuloaga)

Translation: Carmel Drake