Solvia: Sabadell Puts its Real Estate Subsidiary Up For Sale

17 October 2018 – El País

Sabadell is going to listen to offers from several real estate vulture funds that are interested in acquiring its subsidiary Solvia, the manager of its properties. The entity, which declined to comment, has now entrusted the sales process to an investment bank. In the summer, Jaime Guardiola, CEO of Sabadell, justified holding onto Solvia due to “the great contribution it makes to the bank”, but now he is taking a step towards selling it. Sources in the sector indicate that Sabadell wants to strengthen itself and take advantage of the good climate still being enjoyed in the real estate market.

The banks are getting rid of properties before the booming market deflates. They are selling not only portfolios, but also the companies that specialise in the management of those real estate assets, known in the sector as servicers. Until now, it was typical for the banks to include their servicers in the package of asset sales: that is what CaixaBank did with Servihabitat and BBVA with Anida.

But, Sabadell wanted to get more mileage out of its subsidiary and so decided not to sell Solvia when it divested around €12.2 billion of its properties to Axactor, Cerberus, Deutsche Bank and Carval. Nevertheless, Sabadell has now taken the definitive step and is open to offers from the interested vulture funds. According to sources in the market, the interested parties include Cerberus and Oaktree.

148,000 assets under management

Based on data as at May 2018, Solvia is one of the leaders in the real estate services market in Spain, with a portfolio of 148,000 units in assets under management, whose value exceeds €31 billion, according to the entity. In a report from Goldman Sachs, Sabadell indicates that Solvia’s annual profit amounts to €40 million.

The company has extensive experience in the marketing of new build developments, given that it has placed more than 10,000 homes in new developments on the market since 2015. At the moment, Solvia has 55 developments up for sale. In terms of rental, as of October, the firm was managing 32,000 assets, of which 74% belong to Sabadell. Solvia also works with other clients, including Sareb.

The report from Goldman Sachs noted that Sabadell could sell Solvia as a way of raising its capital ratios, with little detriment to its income statement.

Market sources agree with these arguments to explain the step taken by Sabadell. On the one hand, as the European Central Bank has indicated, entities must accelerate the sale of all businesses relating to the real estate sector. The banks are aware that times of lower economic growth will come and understand the importance of taking advantage of the appetite that the large international funds still have for Spanish property.

On the other hand, the sale of Solvia will also result in cost savings, a reduction in the workforce and, above all, lower capital consumption. In the last quarter, between March and June, Sabadell’s capital ratio decreased by one point, from 12% to 11% for its CET 1 fully loaded capital ratio (the highest quality indicator). The limit on the basis of which the ECB applies severe measures is 10.5%.

This decrease was due to the problems that Sabadell has been facing with its British subsidiary TSB, which was left without a service for weeks. Between March and June, the bank lost €138 million in provisions against real estate portfolios and the problems at TSB.

Original story: El País (by Íñigo de Barrón)

Translation: Carmel Drake

Brussels Approves the Sale of CaixaBank’s RE Arm to Lone Star

11 October 2018 – La Vanguardia

Today, the European Commission (EC) has given the green light for CaixaBank to sell 80% of its real estate business to the US fund Lone Star after verifying that it will not harm competition due to its “limited impact on the market structure”.

The EU Executive reported its approval of the operation, which was announced by CaixaBank on 28 June and which will involve the sale to Lone Star of a portfolio comprising the real estate assets available for sale as at 31 October 2017 and the real estate company Servihabitat.

The package is worth around €7 billion in its entirety.

CaixaBank is planning to close the sale at the end of this year or the beginning of next year and estimates that it will result in cost savings of €550 million over the next three years, between 2019 and 2021.

Moreover, it will allow it to clean up its balance sheet of foreclosed assets proceeding from the crisis and improve its returns, according to the bank.

The Competition Department of the European Commission analysed the operation using the simplified procedure for reviewing mergers, which is used for those deals that, a priori, will generate the fewest problems.

Original story: La Vanguardia

Translation: Carmel Drake

CaixaBank Will Save €550M Over the Next 3 Years from the Sale of its Real Estate

27 July 2018 – La Vanguardia

CaixaBank estimates that the sale of 80% of its real estate business to the US fund Lone Star will result in a cost saving worth €550 million over the next three years, from 2019 to 2021.

On 28 June 2018, CaixaBank announced that it had reached an agreement with Lone Star to sell it a portfolio of foreclosed assets comprising real estate assets available for sale as at 31 October 2017 and the real estate company Servihabitat, worth around €7 billion in total.

The CEO of CaixaBank, Gonzalo Gortázar (pictured above), highlighted today that the operation, which is expected to be closed at the end of this year or the beginning of next year, will allow the entity to clean up its balance sheet of the foreclosed assets accumulated during the years of the crisis and to improve profitability.

“We have managed to reduce the volume of harmful assets sooner than we had expected, before the new strategic plan comes into effect” for the period 2019-2021 that CaixaBank plans to present in November, according to Gortázar.

The director added that the operation with Lone Star will not generate “a significant result” for CaixaBank, although it will allow it to increase its future profitability, thanks to cost savings of around €550 million over the next three years, given that having real estate assets on its balance sheet has an associated operating cost.

The completion of this sale will result in the deconsolidation of CaixaBank’s real estate business, which will make it “the bank with one of the most healthy balance sheets in the Spanish market”, he said.

Original story: La Vanguardia

Translation: Carmel Drake

CaixaBank Transfers Servihabitat & €6.7bn in Toxic Assets to New JV with Lone Star

28 June 2018 – El Confidencial

Caixabank has followed in the footsteps of Santander and BBVA, as expected, to create a joint venture company with a large international fund to which it is going to transfer a large proportion of its toxic real estate assets.

Specifically, the entity has reached an agreement with Lone Star to transfer to this new jointly-owned vehicle its entire portfolio of foreclosed assets, whose gross value amounts to €12.8 billion, and which in net terms is worth €6.7 billion, as well as the servicer Servihabitat, whose ownership it recovered on 8 June, when it acquired the 51% stake that it had sold to TPG five years ago, and which takes the final amount of the agreement to €7 billion.

Lone Star will own 80% of the share capital of the new company, whilst the financial institution will control the remaining 20%, a structure that will allow CaixaBank to deconsolidate the assets. The deal is expected to have a neutral impact on the bank’s income statement, but will allow it to improve its capital ratio, the ultimate motivation behind these kinds of operations.

Specifically, the agreement with Lone Star will allow the bank to increase its fully loaded CET 1 ratio by 30 basis points, but, given that the purchase of Servihabitat resulted in a hit of 15 points, the net outcome of these two operations will have a final impact of a 15-point improvement.

Pressure from the European Central Bank on Spanish entities to accelerate the real estate clean up have been the trigger for these kinds of operations, since they allow the immediate deconsolidation of million-euro batches of toxic assets, which will be sold gradually through the joint ventures that are being created with the funds, whereby avoiding the need for the entities to recognise greater losses now.

Gonzalo Gortázar (pictured above), CEO of CaixaBank, highlighted that this “operation allows us to fast forward by a couple of years with our strategic objectives of reducing non-performing assets, allowing CaixaBank to position itself as one of the banks with the most healthy balance sheets in the Spanish market”.

The agreement also stipulates that Servihabitat will continue to render services to the bank for five years and the final signing of the agreement with Lone Star still depends on approval from the CNMC – Spain’s National Competition and Markets Commission – for the repurchase of 51% of the servicer, at which point the financial institution will be able to sell the assets onto the new joint company.

For its 80% stake (equivalent to around €5.6 billion based on current numbers), the fund will pay the valuation that the assets have at the time the transfer is definitively closed, which is still pending the corresponding authorisations, in both Spain and Europe, which means that the parties will have to wait until the end of this year or the first quarter of 2019.

CaixaBank expects to achieve cost savings of €550 million before taxes over the next three years, an improvement that also includes the new servicing contract that will be signed with Servihabitat.

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake