Tag: coverage

Sabadell Set to Sell €10bn of Toxic RE in June After Receiving Deluge of Binding Offers

25 May 2018 – El Confidencial

Banco Sabadell has entered the home stretch of its mission to sell all of its toxic property, a rapid process that is expected to be completed in June. The entity has received a deluge of binding offers for the four portfolios that it currently has up for sale – Coliseum, Challenger, Makalu and Galerna – which have a combined gross value of more than €10 billion.

The first two portfolios contain foreclosed assets (REOs) and include Cerberus, Blackstone, Lone Star and Oaktree as potential buyers (in the final round); meanwhile, the other two portfolios comprise secured loans with real estate collateral (NPLs) and their potential buyers include Deutsche Bank, Lone Star, Bain Capital and Oaktree, according to confirmation from several market sources.

These proposals are now with the Steering Committee, which means that, once that body has given its verdict, the process will be passed to the Board of Directors, chaired by Josep Oliu (pictured above, right), which is the body that has to ratify the name of the winner.

In theory, this ruling is going to be issued within a matter of weeks, in June and, in any case, before August. Sources at the entity have declined to comment on either the finalists or the calendar.

Portfolios and the FGD

Having chosen the names of the winners, Sabadell will be able to close the sale of Challenger, the largest of all of these portfolios, with a gross volume of almost €5 billion; it is the only one that does not need approval from the Deposit Guarantee Fund (FGD), given that all of the assets contained therein come from the Catalan entity itself.

By contrast, the €2.5 billion in properties that comprise Coliseum come from the former entity CAM – Caja de Ahorros del Mediterráneo – and, therefore, need to be approved by the FGD, since it would have to cover 80% of the losses. The same applies to Makalu (€2.5 billion in loans) and Galerna (€900 million).

The need to receive this approval means that it is likely that the entity will have to wait until next year to deconsolidate all of these toxic assets, although it will be able to sign a sales agreement conditional upon that authorisation, like BBVA did in the case of the sale agreed with Cerberus last year to transfer all of its property, some of which is also subject to the FGD’s approval.

By contrast, this year, Sabadell could remove almost €5 billion in the form of Challenger from its perimeter, a step forward in terms of fulfilling the requirements of the European Central Bank (ECB), which is putting pressure on Spanish entities to remove the impact of a decade of real estate crisis from their balances sheets.

Solvia is being left out of the sale

At the end of the first quarter, the entity held €14.9 billion in problem assets, down by 17.6% compared to a year earlier, with an average coverage ratio of 55.2% (56.6% for doubtful debt and 53.7% for foreclosed assets), a percentage that serves as a reference for the funds when calculating their offer prices.

With the sale of all of these portfolios, the entity would reduce its real estate exposure to less than €5 billion.  Since the beginning of the crisis, that exposure has been managed by Sabadell’s own servicer: Solvia.

Some of the finalist funds had asked the entity to include Solvia in the transaction, according to Voz Pópuli, but in the end, that possibility has been ruled out by the bank, as it considers that the valuation of its asset manager is higher than the price that would be offered by funds.

In addition, as El Confidencial revealed, the servicer has created its own property developer, Solvia Desarrollos Inmobiliarios, which has €1,252 million in managed assets and which is also finalising an agreement with Oaktree to create a joint venture promoter.

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake

A&M: Spain’s Top 5 Banks Cut Their Toxic Assets to Below €100bn

18 February 2018 – Voz Pópuli

Good news for the banks. The heavy burden of recent years, their exposure to real estate, is causing less concern, little by little. The work undertaken over the last year has allowed the large institutions to reduce their volume of problem assets (doubtful and foreclosed loans) to less than €100 billion.

That is according to the findings of a report from the consultancy firm Alvarez & Marsal based on figures at the end of 2017: the five largest banks (Santander, BBVA, CaixaBank, Sabadell and Bankia) decreased their toxic assets from €145 billion to €106 billion. That calculation does include the transfer of €30 billion from Popular to Blackstone – which will be completed within the next few weeks, – but not the sale of €13 billion from BBVA to Cerberus.

Taking into account the latter operation, the level of toxic assets held by the five largest banks amounts to €93 billion, having decreased by 36% since 2016. Those figures do not include exposure to other entities that also made significant efforts in this regard during 2017, such as Liberbank.

According to the report, after all of the events of last year, CaixaBank is the entity that now has the largest volume of problem assets on its balance sheet, with €27 billion. The group chaired by Jordi Gual has engaged KPMG to undertake a large divestment of its foreclosed assets, but that it is taking longer than expected.

The second-placed entity in the ranking is Santander, with an exposure of €25 billion, which in net terms (after provisions) amounts to €13 billion. Its CEO, José Antonio Álvarez, announced a few months ago that he expects to divest around €6 billion this year.

The third bank in the ranking is BBVA, with €21 billion, before the sale of €13 billion to Cerberus. Once that operation has been closed (scheduled for the end of the first half of this year), it will be the most healthy entity, with the highest levels of coverage.

Plans underway

Sabadell is another of the entities that has made the greatest efforts to liquidate its property in recent months. It decreased its balance from €19 billion to €15 billion in 2017 and is planning big sales this year, provided it receives approval from the Deposit Guarantee Fund.

Meanwhile, Bankia has actually increased its exposure, by integrating BMN, although it will not reveal its plans in this regard until it unveils its next strategic plan (at the end of this month).

The bulk of the work in the sector has now been completed. Nevertheless, the home straight still remains, which is what will be tackled this year, to a large extent. With this, the banks will be able to turn the page and dedicate their resources to granting credit rather than to covering past losses.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Cerberus In Exclusive Negotiations With BBVA To Acquire €2,000M Portfolio

22 September 2017 – El Confidencial

The operation in question is called Project Sena and it is the most important portfolio that BBVA has put on the market to date. With a volume of toxic real estate assets worth €2,000 million, primarily comprising NPLs backed by residential collateral, the entity chaired by Francisco González is holding exclusive conversations with Cerberus, according to several sources in the know. Both the bank and the fund have declined to comment.

Nevertheless, the US fund’s appetite goes much further and extends to include the real estate company Anida, which could end up forming part of the transaction as well. That would result in the second largest real estate divestment to be undertaken by a Spanish entity this year, following the sale of €30,000 million in toxic assets agreed between the new Santander-Popular and Blackstone.

The negotiations between Cerberus and BBVA date back to last summer and are currently at a critical point, in terms of tilting the balance one way or the other. Options on the table include Cerberus acquiring Sena on its own, adding Anida into the mix, or acquiring the former and entering the process to compete for the latter, a decision that could be taken at the next meeting between the entity’s Board of Directors.

As El Confidencial revealed, the idea has been floated at La Vela (BBVA’s headquarters in Madrid) of selling Anida to accelerate the real estate unblocking that the Bank of Spain itself is encouraging all the entities to undertake. In fact, BBVA has engaged PwC to advise it on the operation, and it is open to receiving different offers.

In its favour, Cerberus has the advantage of being in pole position to acquire Sena, a card that it wants to play in its favour to also bid for Anida. Nevertheless, other investment giants, such as Lone Star and Apollo, may also be interested in acquiring the real estate firm, a giant with gross assets of more than €5,000 million and the heir, along with others, of the former fund BBVA Propiedad, which the bank practically rescued at the end of 2008, when the first signs of the crisis emerged.

The net real estate exposure on BBVA’s balance sheet amounts to €8,750 million, according to the bank’s most recent half-yearly accounts, thanks to high coverage levels, which amount to 57% on average, one of the most conservative figures in the sector.

With a strategy clearly aimed at divesting real estate, in the last year, BBVA has undertaken several major operations, such as the sale of its Boston and Buffalo portfolios, the transfer of 1,500 homes to Testa, whose gross value amounts to €485 million and the transfer of land worth €431 million to Metrovacesa. Moreover, alongside Santander, BBVA is a shareholder of Merlin Properties, the largest Socimi in Spain.

After all these movements, the largest pawn currently in play is Anida, which also includes a property developer division, Anida Desarrollos Inmobiliarios, and several subsidiaries that the bank has been gathering up under the same umbrella, such as Anida Operaciones Singulares and subsidiaries in Mexico and Portugal.

In theory, the overseas units would be left outside of the real estate company sales process that is currently on the table, an operation whose final outcome is regarded in the market with as much expectation as concern, given that in the past, the entity has received several expressions of interest for Anida that have never ended up materialising.

But now the panorama has changed, given that the operation between Santander and Blackstone has put pressure on the rest of the sector to make similar moves, and the entities are increasingly more inclined to accelerate the divestment of their real estate.

Original story: El Confidencial (by Ruth Ugalde)

Translation: Carmel Drake

Santander Engages Morgan Stanley To Execute Express Sale Of Popular’s Property

29 June 2017 – Voz Pópuli

Banco Santander does not want to waste any time with its sale of Popular’s properties. The entity chaired by Ana Botín has engaged Morgan Stanley to execute an express plan to get rid of the problem assets that it has inherited from its subsidiary, according to financial sources consulted by Vozpópuli. Sources at Santander declined to comment.

According to the same sources, the mandate does not outline the sale of specific assets, but rather it defines which would be the best solution: the rapid transfer of assets in large batches; the reactivation of Ángel Ron’s old idea of creating a bad bank (Project Sunrise); the transfer of assets to Testa and Metrovacesa; or taking things more slowly to benefit from the economic recovery.

It is about putting the real estate balance sheet in order and defining the best path for each asset type. But Morgan Stanley’s work, which is being led by its CEO, Juan González Pedrol, will not focus only on resolving Popular’s existing property puzzle. It is also meeting investors to get them to analyse assets and prepare bids.

The fact that Santander has already committed to a mandate of this calibre shows that it is not afraid of reducing the volume of problem assets, which amount to almost €50,000 million after the merger. That is something that investors would penalise in the event that those assets stagnated on the bank’s balance sheet. In that context, a few weeks ago, Botín committed to cutting Popular’s real estate exposure in half by 2019.

The person responsible for this task at Santander is Javier García Carranza, Deputy General Manager of the group and Head of Restructuring, Real Estate, Investments and Venture Capital. García Carranza joined Santander from Morgan Stanley, where he used to be responsible for Real Estate in London.

The mandate given to his former entity is one of the most sought-after in the investment banking sector, alongside the capital increase, from which Morgan Stanley has been ruled out. Names still in the running for that €7,000 million-operation include Citigroup and UBS, as global coordinators, and Credit Suisse, Deutsche Bank, Barclays, BBVA, HSBC and CaixaBank, according to Bloomberg (…).

Saracho’s plan suspended

One of the first measures introduced by Santander after it took control of Popular was to suspend the operations that Saracho’s team had set in motion. The former management team had at least two portfolios on the market (…).

Sources in the market expect Santander and Morgan Stanley to bring a large portfolio onto the market before the end of the year, given that there is a lot of demand from large international funds. The clean-up conducted during the merger, of almost €8,000 million, means that the group is ready for these operations.

Following the merger, Santander has accumulated problem assets amounting to €48,417 million, according to the latest official figures. Of those, €36,800 million come from Popular, with a coverage after extraordinary provisions of 66%, and €11,600 million from Santander, which before the merger held a coverage of 57%. That means that the new Santander-Popular entity has more assets than Sareb.

In addition, the group holds other investments, such as its stakes in Metrovacesa, Sareb and Testa Residencial, which, in the case of Santander alone, amount to €5,300 million.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Santander Is Ready To Divest €7,500M Of Popular’s Problem RE

21 June 2017 – Cinco Días

Banco Santander acquired Popular last week, including its €30,000 million real estate exposure (comprising properties and problem loans), which the entity dragged into the new model of European resolution. That slab ended up taking out Popular’s new President, Emilio Saracho, after he proved himself incapable of finding a credible solution for unblocking the property on the entity’s balance sheet, despite taking over the reins in February.

By contrast, the President of Banco Santander, Ana Botín, needed just a few hours to appear publicly with a strong message to calm the market. “We are going to divest half of the real estate assets in 18 months”, she said. A challenge into which her entity will invest €7,200 million to clean up the bank that it purchased for €1. But that is just the first step.

The signal that Santander is going to give the market is one of an agile response to digest the real estate assets. Whilst it has already taken a decision to increase the coverage of those assets, which guarantees that it will be able to sell them with large discounts without having to record large losses, the bank is now in a position to sell both the secured debt portfolio and the real estate assets in an accelerated manner. In total, it has identified €7,500 million in assets that it could divest in a matter of months if it so decides.

Doubtful debt

Of the €12,100 million in doubtful loans inherited from Popular, the company presided over by Botín has a battery of up to €5,000 million that it has already identified that it could package up and sell as quickly as it wants, according to financial sources familiar with the portfolio.

These sources indicate that Santander will likely slice up the €5,000 million into several portfolios and put them up for sale. Although this is a significant amount, the financial sector considers that if the bank puts the packages on the market at a good price, it will receive quite a favourable response from the typical opportunistic funds that participate in these types of processes.

Strategy with subsidiaries

Moreover, it has been revealed that the entity presided over by Botín will likely use its real estate subsidiaries to digest the assets. That is the first scenario being considered by the team from Santander that is intervening in Popular. In fact, it has already come up with some provisional figures regarding how much could be transferred to the different companies: between €2,100 million and €2,500 million.

A large part of that amount, around €1,200 million, corresponds to land that can be transferred to Metrovacesa, according to the same sources. Santander owns a 70% stake in that company, in addition to the c.9% stake held by Popular. (…).

Santander is also currently evaluating the contribution of between €500 million and €800 million in high-quality tertiary assets (primarily offices) to the Socimi Merlin Properties, which is listed on the Ibex 35. That process – which could be approved before the end of the year – would be completed only after analysing the assets and evaluating whether they fit with the company’s current portfolio, which contains properties worth more than €10,000 million. (…).

Finally, the entity may also transfer rental homes worth between €400 million and €500 million to the Socimi Testa, which it plans to debut on the stock market in 2018 and which is currently negotiating the incorporation of Acciona’s buildings into its portfolio (…).

Sources at the bank warn that it is still too early to quantify the assets that it wants to put up for sale first, given that any sale would have to be preceded by a new valuation process. (…).

The team that is going to lead this process on Banco Santander’s side is being led by José Antonio García Cantera, the man that Botín has put at the head of Popular for this transition period until the full integration has been completed, and by Francisco Javier García-Carranza, the entity’s new CEO. (…).

Original story: Cinco Días

Translation: Carmel Drake

How Will Santander Get Rid Of Popular’s RE Assets?

13 June 2017 – Expansión

Double approach / The bank will put some large portfolios on the market to sell them to opportunistic funds and will also transfer some of the assets to Metrovacesa, in which Santander is the majority shareholder. 

Last year, the real estate nightmare stopped causing headaches for Santander. The risk accounted for just 2% of the balance sheet of its Spanish subsidiary (…). Between 2012 and March 2017, its volume of damaged assets fell by 60% in net terms, according to its own numbers.

However, the arrival of a block of RE exposures worth €36,800 million from Popular will force its managers to roll their sleeves up once again. Nevertheless, this is happening at a point in the real estate cycle that, a priori, is much more favourable.

Santander’s intention is to cut Popular’s toxic assets in half within a year and a half, with the aim of reducing the balance to an immaterial amount within three years.

Santander will go to the market over the next few months to sell significant batches of assets to opportunistic funds that are dedicated to this business. These divestments tend to be made at a loss because the funds pay low prices. Santander starred in one of the fifteen large operations closed in 2016, with its sale of a portfolio to Grove and Lindorff. (…).

Popular did not have this solution available to it because of the low provisioning level that it had covering these assets. As a result, any such operation would have made the losses in its income statement even worse. In fact, during the whole crisis, Popular only made public two transactions, which together amounted to €621 million. The only channel that it could afford to use was retail.

Digestion

By contrast, Santander can afford to allow these divestments. One of the objectives of the €7,000 million macro-capital increase that it is going to undertake is precisely to increase the level of provisions for Popular from 45% to 67%. The average level in the sector stands at 52%. In the case of non-performing loans, the coverage will jump from 55% to 75%.

These future sales will lead to an intensification of this market, which last year moved €15,600 million, according to data compiled by KPMG. Since the start of the crisis, total divestments through this channel amount to almost €100,000 million.

Metrovacesa

Santander has another door open for providing a rapid exit to Popular’s real estate assets and its called Metrovacesa. Santander is the property developer’s largest shareholder, with 72% of the capital, in addition to Popular’s stake.

Ana Botín’s team already used this channel last year to transfer risks and it is likely that it will use it again with Popular, especially for its land. Santander also owns a stake in the Socimi Testa Residencial, which is scheduled to debut on the stock market in 2018. That company owns 8,064 rental homes, which could be supplemented with the buildings owned Popular that are most susceptible to rent. (…)

One of the first decisions taken by Ana Botín following the purchase of Popular has been to appoint Javier García Carranza, the Head of Santander’s Real Estate Restructuring area, to Popular’s new Board of Directors.

After several years of high provisions to cover the real estate assets, the large entities consider that the coverage level is now sufficient. The vast majority of the current costs are maintenance related. In other words, they stem from the payment of municipal taxes, neighbourhood costs, etc. (…).

Original story: Expansión (by R.Lander and R.Ruiz)

Translation: Carmel Drake

Popular Puts €1,500M Macro RE Portfolio Up For Sale

6 June 2017 – Voz Pópuli

(…). The entity chaired by Emilio Saracho (pictured above) has launched an express plan to sell its problem assets and one of the key elements is the sale of the largest real estate portfolio to come onto the market in Spain since 2015. The portfolio of properties has been designed by KPMG, and has an initial value of between €1,500 million and €2,000 million, according to financial sources consulted by Vozpópuli. This is part of the plan that the entity is presenting to the ECB today to regain the confidence of the regulators. (…).

In addition, Saracho has spent the last few days meeting with investment banks to see how to accelerate the unblocking of Popular’s problem assets. (…).

The sale of problem assets is critical for Banco Popular regardless of its future. The heavy weight of those assets (worth €37,000 million) is the source of this entity’s problems, which have been further compounded in recent months by its capital and liquidity troubles and the risk of claims. (…).

For this reason, Banco Popular needs to accelerate the sale of the €36,800 million that it owns in toxic assets as soon as possible. Above all, it needs to focus on its foreclosed assets, which have the lowest level of coverage (38.5%) and which most concern the market and potential buyers. To bring the provisioning level of its properties in line with the levels adopted by BBVA and Santander, Popular would need to recognise (additional provisions of) around €1,500 million to €2,000 million.

Under the spotlight

With the sale of portfolios such as the one being advised by KPMG, Banco Popular would reduce some of its problems. Even so, financial sources doubt that the short term future of the entity is going to be determined by operations such as this one (…). Rather, they add, that this is a way of getting ahead with the work, regardless of the solution.

In this sense, the banks that are considering submitting a bid for Banco Popular have been making contact with opportunistic funds and investment banks over the last few weeks to work out how to share out the Spanish entity: the good bank could go to Santander, BBVA and Bankia, and the problem assets could go to overseas investors.

The key to accelerating the unblocking of the real estate assets is the prices that Banco Popular can accept on the basis of its provisions. Currently, the foreclosed assets are recognised on the balance sheet at 60% of their initial values, well above the values demanded by the opportunistic funds, which are closer to 30-40% of their initial values (…).

The portfolio that Popular is preparing represents one of the largest currently up for sale in Europe and the fourth largest to go on the market in Spain ever, after: Project Hércules, involving €6,400 million in problematic mortgages from Catalunya Banc, which was acquired by Blackstone; Project Octopus, containing €4,500 million in Eurohypo loans, which were purchased by Lone Star and JPMorgan; and Project Big Bang, which saw Bankia put most of its foreclosed assets up for sale, in a deal that it negotiated to the end with Cerberus, but which failed to close.

The two main favourites to acquire this latest portfolio are Blackstone and Apollo, the two funds that have been buying Popular’s other portfolios to date, albeit smaller ones, averaging around €400 million to €500 million. The entity currently has another process underway, involving a €500 million portfolio, which is being coordinated by Irea, and in which the following entities are competing: Oaktree, Apollo, Bank of America and Bain Capital.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

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

Banco Popular’s Complex RE Clean Up Continues

24 November 2016 – Expansión

Popular was the most profitable bank in Spain’s financial sector until it decided that it did not want to get left behind in the real estate development business. The problem is that it joined the party too late, when the real estate bubble had already begun to burst (….). The result is that, several years after the outbreak of the crisis…Popular is the bank with the highest proportion of toxic real estate assets on its balance sheet. It also has one of the lowest levels of coverage. The bank’s total real estate exposure amounted to €25,376 million in September, with a coverage ratio of 35%.

In this context, the essential axis of Popular’s clean up plan, designed by the heads of the bank and approved by the supervisory bodies, placed the emphasis on the €2,500 million capital increase that was carried out in June (to reduce the bank’s installed capacity by closing branches and reducing the staff), and, above all, on increasing the coverage for toxic assets to bring the entity in line with the rest of the sector, in such a way that it would make it easier for it to divest these assets.

That is what the entity is looking to carry out with its project to create a separate real estate company using some of its assets. Ownership of those assets will transfer from the bank directly into the hands of the financial institution’s shareholders.

But now, data provided by Popular, when it presented its results for the third quarter, has revealed that the net debt of the real estate and associated businesses amounted to €15,518 million in September and that the provisions amounted to €9,858 million. The total exposure therefore amounted to €25,376 million and the coverage afforded by those provisions stood at around 35%. The rest of the financial sector has provisions to cover up to 50% of their respective exposures.

The bank’s plan is to reduce its non-profitable assets by 45% by 2018 and for the coverage of its toxic assets to increase to 50%. In fact, sources at the bank say that the latter was fulfilled at the end of October (…).

The constitution of these new provisions should facilitate both retail sales, as well as the sale of portfolios of toxic real estate assets, because the entity will be able to sell at more competitive prices in the market without incurring fresh losses in its income statement. The new provisions should also allow the headline figures to be outlined for the real estate company that is pending approval by the financial supervisors and the CNMV. Undoubtedly, when authorisation is granted and the bank ceases to be the owner of real estate assets amounting to €6,000 million (book value), it will represent a huge relief for the bank’s future quarterly results.

However, the question is whether that will be sufficient, or not, for investors to consider that Popular is undertaking the clean up process at the right pace and will ever return to profitability.

Whilst decreasing the volume of toxic assets by €6,000 million involves significant effort, even once that hard work has been completed, the entity will still have a high volume of problem assets on its balance sheet, between €19,000 million and €20,000 million, according to its own accounts. The bank will have two years to reduce its exposure to the real estate and associated sectors by €5,400 million if it is to achieve the established objective of reducing this caption of its balance sheet by 45% with respect to its current level.

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Sareb & The Banks’ RE Arms Commission 3x More Appraisals

2 November 2016 – Cinco Días

During the first half of this year, Sareb and the real estate subsidiaries controlled by the banks commissioned appraisals for 845 properties per day. That figure represents a threefold increase compared to the same period last year. In other words, a real boom in the number of appraisals being performed for real estate portfolios in the sector. This sharp increase has been driven by the Bank of Spain, in its quest to ensure that asset prices reflect the reality of the market, with the dual aim of facilitating their sale and preventing deceptive quantifications in the value of assets on the balance sheets of entities in the industry.

Two specific pieces of regulation have been developed to acheive these aims. Firstly, new accounting regulations for Sareb, which was notified last October that it must reappraise its entire portfolio at market prices in just a few months: at least 50% of its properties had to be reappraised in 2015 and the remainder this year.

Secondly, the Circular 4/2016, whereby the institution governed by Luis María Linde strengthened the coverage and provisions that the financial institutions have to make and which requires them to perform an updated valuation of the real estate collateral securing their loans.

Although the financial institutions have already started to review the value of their balance sheets, for the time being, the regulations have had more impact on the field of appraisals involving Sareb. That is according to the Spanish Association of Value Analysis (AEV), which groups together the main appraisal companies in Spain, which are responsible for performing 90% of the appraisals conducted in the country. According to the association, during the first half of the year, Sareb and the asset management subsidiaries of the major Spanish banks commissioned 152,166 appraisals in total.

That figure far exceeds the 47,256 appraisals that the same group of companies requested during the first half of 2015. The rate has tripled in just one year, with the intermediate step taken during the second half of last year, when 119,942 appraisals were requested, after the so called bad bank was notified about the contents of the Bank of Spain’s new accounting legislation and the short calendar for its implementation.

From the appraisals carried out for Sareb and the banks’ real estate companies during the first half of this year, 46,895 correspond to full appraisals, which are those that include a visual inspection of the property (even if internal access is not possible) as well as the performance of the typical checks for mortgage valuation purposes (such as checking that the property exists, ensuring that the urban planning situation is up to date, etc.), say sources at AEV.

Another 16,676 valuations were performed using automatic templates. Sources at the AEV explain that this type of appraisal tends to be used to carry out valuation updates for large groups of properties using statistical methods.

Finally, another 88,525 appraisals were performed using other, automated, mass-valuation methods, including mathematical models, online valuations and the so-called desktop valuations, which are performed remotely using photographs and street views such as those supplied by Google Street, for example. (…).

The figures published by AEV show that the analysis of these portfolios has resulted in low valuations this year: the 47,000 properties valued during the first half of 2015 had a combined appraisal value of €11,380 million, whereas the 150,000 properties valued during the same period in 2016 have a combined appraisal value of €21,654 million. In other words, triple the number of assets correspond to just twice the appraisal value.

Original story: Cinco Días (by Juande Portillo)

Translation: Carmel Drake