Sareb’s Investors Will Lose 30% Of Their Investment

7 April 2017 – Expansión

Sareb, the bad bank that took over most of the toxic real estate assets from the banks intervened by the State through the Frob, announced a substantial modification to its business plan last week. The change represents an acknowledgement of the fact that, at the end of the entity’s life, in 2027, its shareholders will have lost 30% of their initial investment, almost €1,440 million. As such, the shareholders are going to have to recognise provisions for that impairment this year.

The creation of Sareb (which began operating in 2013) was conducted after the State received European aid to clean up the domestic financial system. It was not possible before because the Treasury did not have sufficient funds to do launch the initiative alone.

In an attempt to ensure that the State’s contribution would not add to the public deficit, a procedure was carried out whereby the private banking sector, insurance companies and some real estate companies contributed most of the necessary own funds (55%) and the Frob contributed the remaining 45%. This meant that in total, €4,800 million was contributed, €1,200 million in the form of capital and €3,600 million in the form of subordinated debt, convertible into capital, which would receive a relatively high remuneration if the company were to generate profits.

Sareb obtained the other resources required to pay for the real estate assets acquired from the banks in difficulty, by issuing debt over one, two and three years, which the entities from which the assets had been acquired were obliged to subscribe to and which is now being renewed for equal periods as it matures, but in reducing amount thanks to Sareb’s ability to generate funds to repay it.

All of the private banks, with the exception of BBVA, answered the call of the economic authorities and invested on the basis of their size. Santander put €805 million in the pot; CaixaBank, €581 million; Sabadell, €321 million; Popular, €276 million, and Kutxabank, €122 million. The other entities contributed smaller but no less representative amounts, based on their size.

Initially, the business plan forecast that the entity would become profitable after five years and it was stated that the company would generate an annual return of 14% over the course of its 15-year life. (…).

When the President of the entity, Belén Romana, was replaced by Jaime Echegoyen, that long-term business plan was modified to try to bring it closer to the reality of the problem assets whose orderly exit is complicated and whose profit generating ability is pretty much impossible.

The Ministry of Economy decided that the supervisor of Sareb’s accounts should be the Bank of Spain because the assets had come from financial institutions and because a large part of them were essentially problem loans. The supervisor established some very strict accounting standards regarding provisions (…), which forced the bad bank to register losses from its first year onwards, which reduced the level of capital subscribed by the shareholders by the same proportion. (…).

The evolution of the market and of Sareb itself have meant that, again, a revised business plan is being prepared to reflect the latest reality, which, according to the statement made to shareholders last week, not only completely abandons the plans for Sareb’s owners to obtain any returns from the risk they have borne, but also recognises that the total liquidation of the assets will result in losses of around 30% on the capital and debt invested. In other words, the investors will recover €3,360 million at most and will certainly lose €1,440 million. The Frob stands to lose the most: almost €650 million.

Most, if not all of those who invested in Sareb understood that they were providing a service to the country and that obtaining any returns was very unlikely and that there may be losses at the end of the process. Losses that they would recognise when the time came.

But the situation has now changed. This latest announcement means (….) that the shareholders have no choice but to recognise provisions for the losses announced this year. That means a new effort for the banks, some of which are already very stretched in terms of their provisions for this year.

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Sareb May Exchange Its €57.5M Debt In Realia For Shares

20 May 2015 – El Economista

Sareb may have the option to enter the share capital of Realia, with a maximum stake of 4.5%, through the exchange for shares of the equity loans (€57.5 million) that it holds with the real estate company.

Realia will request authorisation at its next shareholders’ meeting to undertake the necessary capital increases in the event that the ‘bad bank’ decides to perform the operation.

It will undertake two capital increases, one amounting to €29 million and a second amounting to €28.9 million. In both cases, it will issue around fourteen million new shares at €2 per share, a price that almost triples (+185%) the current share price of the real estate company.


In this way, Realia will give the ‘bad bank’ another year to exercise its option to become a shareholder of the company. The institution will consider this possibility at a time when Realia is subject to two takeover bids (OPA), one by the Socimi Hispania and the other by the businessman Carlos Slim.

These bidders are waiting for Spain’s National Securities Market Commission (CNMV) to approve the second bid so that the acceptance period may begin.

Sareb’s equity loan in Realia was granted in September 2009, when the real estate company signed a €100 million loan agreement with its two then partners (FCC and Bankia), which each contributed 50% of the balance. FCC then exchanged its entire loan balance for shares in the company, converting it into the majority shareholder, with a stake of 36.8%, which it has already said it will not sell under either of the takeover scenarios.

Meanwhile, Bankia, which currently has an agreement to sell its 24.9% stake in Realia to Carlos Slim, transferred its share of the loan to Sareb in December 2012. The entity has not yet made any decision about the eventual conversion. Nevertheless, the financing is due to expire in 2016.

Of Sareb’s total loan amount, one tranche amounting to €29 million is “freely convertible” in nature, whilst the second tranche, amounting to €28.58 million, is “not freely convertible”, which means that the institution will have to decide between capitalising it or accepting a discount.

Slim’s arrival

Another item on the agenda at Realia’s shareholders’ meeting, which will be held on 22 June, is the ratification of the appointment of Gerardo Kuri as a Director – he is currently the Director General of Real Estate at Carso, one of Slim’s companies, as well as a Director of FCC and the CEO of Cementos Portland.

Slim appointed this spokesman and positioned him on Realia’s board, after he became the primary shareholder of FCC and that group decided to continue as a partner of the real estate company, but just days before the Mexican businessman launched his takeover bid for the company.

Realia will also ask its shareholders for approval, if they deem appropriate, of an increase in its share capital by up to half of its current size and to issue debt securities for a period of up to five years and for a maximum amount of €450 million.

Original story: El Economista

Translation: Carmel Drake