Tag: doubtful debt

Bankia Puts 3,000 Foreclosed Flats Worth €500M Up for Sale

4 June 2019 – El Confidencial

Bankia has put another problem asset portfolio up for sale as it continues to take the Spanish real estate market by storm in 2019. Project Jarama contains 3,000 flats worth €500 million and is one of the bank’s largest operations involving foreclosed assets to date.

The bank chaired by José Ignacio Goirigolzarri has engaged KPMG to coordinate Project Jarama, which is complicated by the fact that more than half of the assets have not yet been fully repossessed by the bank.

In those cases, rulings have been made in the courts to award the property to the bank in exchange for the defaulted debt, but the entity does not yet hold the deeds or the keys, and the final stage of the foreclosure process could take several months in each case.

This sale forms part of Bankia’s strategy to accelerate its strategic plan. At the beginning of 2018, it set itself the target of divesting non-performing assets worth €9 billion from its balance sheet. By March 2019, it had already sold €6.5 billion.

In recent weeks, it has sold a €300 million portfolio to Blackstone and a €150 million portfolio to Cerberus and Kruk.

Original story: El Confidencial (by Jorge Zuloaga)

Translation/Summary: Carmel Drake

Cerberus & Lindorff Compete for Bankia-BMN’s RE Business

14 February 2018 – Real Estate Press

Bankia has started talks with Haya Real Estate (Cerberus) and Aktua (Lindorff) to award the management of all of the real estate assets that it has incorporated into its portfolio following its merger with BMN (…), according to sources in the know. Bankia has been working with Haya since 2013 and BMN with Aktua, the former real estate arm of Banesto, since 2014.

The same financial sources indicate that Bankia is now in a stronger position to improve the conditions of its contract in light of the good times being enjoyed in the real estate sector. Although the technological integration of the two entities will not take place until 19 March, the authorities already approved the merger at the end of December.

In 2013, the entity chaired by José Ignacio Goirigolzarri awarded the business to manage and sell around €12.2 billion gross in real estate assets to Cerberus. That agreement comes to an end at the beginning of 2023. Haya Real Estate, the Spanish subsidiary of the US fund Cerberus, has become a major player in the real estate market in recent years. It manages debt and assets worth almost €40 billion and has engaged Rothschild to handle its upcoming stock market debut later this year. It also holds agreements with Sareb, BBVA, Cajamar and Liberbank.

In its failed attempt to go public, BMN got rid of its property manager Inmare in 2014 to focus on the traditional business. It then signed a 10-year agreement with Aktua.

Subsequently, the Norwegian fund Lindorff purchased Aktua in 2016. That company also manages the real estate assets of Ibercaja, amongst other entities.

Cerberus and Lindorff are re-enacting the battle fought last summer. Then, the funds were bidding to acquire the real estate subsidiary of Liberbank, Mihabitans. In the end, the US won those negotiations and was awarded the contract to manage Liberbank’s foreclosed assets for the next seven years.

Original story: Real Estate Press

Translation: Carmel Drake

Deutsche, Apollo & Cerberus Compete For BBVA’s Largest RE Development

21 June 2017 – Voz Pópuli

BBVA has three multi-million euro deals on the table to acquire some of its problem assets. In the last few days, the entity chaired by Francisco González has received binding offers from three funds to acquire the portfolio known as Project Jaipur, comprising €600 million in unpaid loans linked to real estate developments.

The three candidates to buy this portfolio, the largest that has been placed on the market to date by the entity, are Apollo, Cerberus and Deutsche Bank, according to financial sources consulted by Vozpópuli.

According to the same sources, these funds have put around €200 million on the table, and the best positioned of the three is the German fund, pending the outcome of the negotiations. BBVA and Deutsche both declined to comment. The other two candidates, Apollo and Cerberus, have their own real estate platforms in Spain, Altamira and Haya, and so they almost always analyse these types of operations.

The Spanish bank now has a few days to decide the winner of the bid, although the result will be announced imminently given the interest in closing it before the end of the first half of the year, and thus being able to reflect it in the results that will be presented in a month’s time.

Selling off property

According to the latest figures, at the end of March of this year, BBVA held almost €6,500 million in property developer loans, of which only €1,700 million were up to date. Another €4,750 million were doubtful, with a provisioning level of 56%. Almost all of these loans were secured by land and finished buildings.

In addition, BBVA has another €13,500 million in foreclosed assets, with a coverage ratio of 63%. On Monday, the CEO of the entity, Carlos Torres, insisted that cleaning up this property is one of the group’s major priorities, in order to whereby improve the profitability of Spain. At the presentation of its last results, it announced a period of three years to achieve its goal of cleaning up its balance sheet.

Torres shielded himself behind the property balance to explain why the entity he leads did not present a bid for Banco Popular, after studying its possible purchase together with Banco Santander just two weeks ago. In the end, Popular was acquired by the entity presided over by Ana Botín, for the price of €1, plus a capital increase of €7,000 million.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Spain’s Banks Have €6,200M In Toxic Assets Up For Sale

25 April 2017 – El Mundo

Spain’s banks want to take advantage of the improving conditions in the real estate market to accelerate the clean up of the non-performing assets that are still weighing down on their balance sheets, almost 10 years after the burst of the bubble. The main entities currently have €6,200 million in toxic assets of all kind up for sale, including land, doubtful loans, hard to recover loans, homes, hotels, industrial warehouses…

Spain’s banks have been working on this process for at least five years, and with particular intensity for the last three. Bankia, for example, has sold €10,000 million since 2013 and CaixaBank has sold €5,000 million in the last two years. The most recent major operation was closed by Banco Sabadell, in January, for €950 million.

Now, in addition to Banco Popular, which has a large volume of toxic assets still to clean up, entities such as Ibercaja, BBVA, CaixaBank and Bankia are offering investment funds assets worth thousands of millions of euros, because they prefer to sell them at a loss, than maintain them on their balance sheets. The entities are accepting losses to improve their default ratios and doubtful client figures. For the funds, the aim is to take advantage of the discounts on offer to obtain very high returns from the subsequent recovery or resale of the underlying assets. (…).

The €6,200 million currently up for sale on this wholesale market, which has a low profile despite its volume, increases to €7,800 million if we take into account the operations completed during the month of January by Banco Sabadell, BBVA, Deutsche Bank and Bankia.

Based on the operations currently on the market, Ibercaja, BBVA and Sareb (…) are the entities with the largest volume of assets up for sale. The bank chaired by Francisco González is planning to conduct a significant cleanup of its balance sheet in 2017 and is currently offering assets and secured and unsecured loans to small developers amounting to €860 million. During the first quarter of 2017, it sold 14 buildings in Cataluña and Valencia and a portfolio containing 3,500 properties to the fund Blackstone.

Meanwhile, last year, CaixaBank completed the sale of two portfolios to funds such as Apollo and DE Shaw, amounting to €1,400 million, and this year it has a portfolio of non-performing loans to property developers, amounting to €600 million. The default rate of the Catalan bank has decreased from 11% at the peak of the crisis to 6.9% now and its doubtful clients have decreased by 47% since 2013.

Nevertheless, the market expects more supply to come onto the market. The European Central Bank (ECB) is putting pressure on the entities to conduct a comprehensive clean-up in order to dispel the myths regarding how profitable they are. Bank of America Merrill Lynch considers that the volume of foreclosed assets held by the main banks still exceeds €34,000 million and that more than €10,000 million still needs to be sold in terms of land alone, which puts the sector’s capacity to clean itself up in real doubt.

The strategy that Banco Popular is following in this regard, which has to get rid of at least €16,000 million, is considered definitive. The prices that it sets and the outcome of its crisis may influence the plans of the other entities, especially those of the smallest, unlisted firms. (…).

Original story: El Mundo (by César Urrutia)

Translation: Carmel Drake

EU Agrees To Create National Bad Banks To Assume Doubtful Debt

11 April 2017 – RTVE

On Friday (7 April),at a meeting in La Valeta, Malta, the Economic and Finance Ministers of the European Union agreed to back the creation of national bad banks, which will take on doubtful debt from the banks and whereby try to solve the problem of the “high” level of toxic assets in the European financial sector.

These non-performing loans, whose value amounts to almost €1 billion (equivalent to 7% of the EU’s GDP), account for 5.4% of the entire European credit portfolio, on average (in Spain, they account for 5.9%). Of particular concern is the high proportion in Italy (16.4%).

The Vice-President of the European Commission for the Euro and Social Dialogue, Valdis Dombroviskis, said that there had been “widespread support for the development of a project regarding how to design a national asset management company” and he encouraged ministers “to make use of the experience regarding asset management companies already in operation in some member states”.

In this sense, he explained that the EU Executive will work on a document that will serve as a guide for the creation of bad banks at the national level, which will take on these toxic products. When asked about the possibility of launching such an entity at the European level, the Latvian remarked that “most of the instruments are already in the hands of the member States” and that “loans are issued in accordance with national legislation”.

The ECB used the bad bank in Spain by way of example

Meanwhile, the Vice-President of the European Central Bank (ECB), Vitor Constancio, highlighted that the preparation of this plan by Brussels was a “very important” conclusion to emerge from the meeting. He gave the example of the good results in cases such as Spain, through the ‘Company for the Management of Assets Proceeding from the Bank Restructuring’ (‘Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria’ or Sareb). (…).

Dombrovskis added that Brussels is also exploring initiatives to facilitate the development of secondary markets for doubtful loans and in this sense, stated that “comparable and high-quality” data are “invaluable” because investors “have to know what they are buying”.

De Guindos defended the Spanish model

The Spanish Minister for the Economy, Luis de Guindos, defended the creation of a bad bank for the non-peforming loans of Europe’s banks as a solution that would eliminate “the root” of this problem, based on the model that Spain has put into practice for its real estate assets with Sareb. (…).

De Guindos underlined that it is also “very important” to value these assets properly and ensure that the provisions to cover them “are at the correct level”. Also, there must be a “fast-track legal system (in the EU) so that lenders are able to foreclose loans”.

The option of creating a bad bank was proposed by the European Banking Authority (EBA), which presented Spain’s Sareb by way of example of the benefits of these types of structure. Sareb was created to provide an exit for toxic real estate assets, but it is not supported by all parties.

Original story: RTVE

Translation: Carmel Drake

ECI Accelerates Sale Of 140,000 Doubtful Loans

10 April 2017 – Voz Populí

Financiera El Corte Inglés has selected three overseas funds as candidates to go through to the final round of its tender to award the first sale of doubtful loans in its history. The entity that is jointly owned by Banco Santander (51%) and El Corte Inglés (49%) has chosen Axactor, Cabot Financial and Link Finanzas as the finalists in Project Alexandria.

Through this process, Financiera El Corte Inglés wants to clean up the worst part of its credit portfolio, by selling off loans that it deems irrecoverable. Project Alexandria comprises 140,000 doubtful credits, mainly corresponding to loans worth €160 million.

This operation is generating a great deal of interest in the market, because to date, El Corte Inglés and its financing arm have not put any portfolios on the market. For this reason, the funds are all willing to pay a premium in order to begin to collaborate with the largest consumer finance company by volume of loans.

The three funds selected to participate in the final phase of the process are investors that have been operating in Spain for a while. They all have their own recovery platforms and they have a vested interest in making a name for themselves in this market.

Who are the candidates?

Axactor arrived in Spain two years go. It is a Nordic group founded by former directors of Lindorff, one of the largest platforms in this segment in Europe, which in Spain controls Aktua and provides services to Sabadell and BMN. Like its fellow group from Norway, Axactor arrived in Spain chequebook in hand and within a few months had purchased several portfolios plus the business and team at Geslico, the former subsidiary of Lico Leasing.

Cabot is also an international recovery platform, based in the United Kingdom, and with connections to Encore, one of the largest global groups, itself based in the United States. Cabot established itself in Spain a couple of years ago and made its break with the acquisition of one of the largest servicers, Gesif.

Meanwhile, Link Finanzas is another British fund whose interest in Spain dates back even earlier than those of the other two investors. Link has been purchasing portfolios in the Iberian market for years. Last year, it consolidated its international presence with the purchase of the last vestiges of BBVA’s consumer business in Italy, for €100 million.

One of these three investors will be awarded the first portfolio to bear the El Corte Inglés brand. They are expected to submit their binding offers, which could amount to €15 million – €20 million, after Easter.

The latest data from Asnet and the CNMV reveal that Financiera El Corte Inglés is one of the market leaders by market share and profit, given that in 2016, it earned more than €66 million. Besides this portfolio, there are currently more than a dozen portfolios in the market, from the main entities in the country, including: BBVA, CaixaBank, Bankia, Liberbank, Ibercaja and Popular, amongst others.

Original story: Voz Populí (by Jorge Zuloaga)

Translation: Carmel Drake

D.E.Shaw Purchases €103m Of Property Developer Debt From Bankia

3 April 2017 – Idealista

Bankia has managed to sell Project Gold, a portfolio of property developer loans amounting to €102.97 million. According to market sources, the buyer is the investment fund D.E. Shaw Group. As a result of this operation, the bank chaired by José Ignacio Goirigolzarri (pictured above) has managed to decrease its doubtful debt balance by €77.24 million and sign its first portfolio sale of the year.

Project Gold comprises a portfolio of doubtful and non-performing loans amounting to €102.97 million, from a variety of industrial sectors, although the property developer segment accounts for the lion’s share.

According to a statement from Bankia, this operation allows the entity to fulfil a dual objective: to reduce delinquency, by selling off doubtful and non-performing loans, and to increase liquidity and free up resources for the granting of new loans. The sale of this package has reduced the entity’s doubtful debt balance by €77.24 million.

The bank has another batch up for sale: Project Tour is a package worth €166 million, containing 1,800 properties, including finished homes, land, commercial premises, industrial assets and hotels. These assets are located primarily in the Community of Valencia, led by Valencia; Cataluña, led by Barcelona; the Canary Islands, led by Las Palmas; Madrid and Castilla y León (where Segovia is home to the most assets).

The entity chaired by José Ignacio Goirigolzarri is known in the market as one of the most dynamic entities: in 2016, it had several portfolios up for sale in the market, including Project Ocean, a real estate loan portfolio worth almost €400 million, which was sold to Deutsche Bank; Project Tizona, containing mortgage loans worth €1,000 million; and Project Lane, with properties worth €288 million.

More than €2,000 million in homes and debt up for sale

According to data compiled by Idealista, the banking and extra-banking sectors currently have more than €2,000 million up for sale in the form of non-performing loans secured by properties and real estate assets (homes, premises, offices, industrial warehouses and land).

Some portfolios are well-known, such as BBVA’s Project Vermont, a batch of property developer loans secured primarily by newly-constructed homes, worth almost €100 million. Several funds were interested in acquiring that lot, specifically, Oak Hill, Fortress and AnaCap.

The same entity has several more packages on the market: Project Buffalo, which comprises homes worth €400 million in total. Another project from the entity chaired by Francisco González is known as Boston, which comprises 16 office buildings located in Madrid, Barcelona and Valencia, worth €200 million. Finally, Project Rentabiliza is a portfolio containing debt to property developers.

In addition, Liberbank has Project Fox on the market, a portfolio of real estate debt worth around €200 million. It is the entity’s first (but not its last) portfolio of unpaid mortgages.

Original story: Idealista (by P. Martínez-Almeida)

Translation: Carmel Drake

Project Gold: Bankia Puts €180M Loan Portfolio Up For Sale

20 February 2017 – Expansión

Bankia, the fifth largest bank in Spain, has just put a €180 million doubtful debt portfolio up for sale. The package contains loans to property developers and is being marketed under the name Project Gold, according to market sources.

Specifically, the portfolio comprises loans granted to small and medium-sized companies in Spain, many of which are property developers.

Last year, the entity managed to close several operations of this kind for €455 million in total, according to its income statement. However, none of those deals featured in the top fifteen largest transactions of 2016 by volume.

Portfolio sales, along with debt recovery processes, have decreased Bankia’s doubtful debt balance by 12.5%, according to annual data. Over the last year, the group has reduced the perimeter of its foreclosed assets by 16.4%. The coverage ratio of its doubtful balances amounts to 55%, which is above average for the sector.

Bankia has a significantly lower exposure to property developer risk than the other large banks because it offloaded the majority of its problematic assets to Sareb, the bad bank, as did the other savings banks that were rescued using public money. Only 1% of Bankia’s business comes from that sector.

Original story: Expansión

Translation: Carmel Drake

Saracho Calls Time On Ron’s Plans For Popular’s Bad Bank

15 February 2017 – El Economista

Project Sunrise, designed by Ángel Ron’s team at Popular to extract €6,000 million worth of real estate assets from the entity’s balance sheet, has run aground. With less than a week to go before Emilio Saracho (pictured above) takes over the presidency, the former global vice-president of JP Morgan has announced that he is not convinced by the plan and has put a stop to it, according to sources.

The vehicle had been approved by the Bank of Spain, but had not yet convinced the Spanish National Securities and Exchange Commission (CNMV) or the European Central Bank (ECB). Their aversion to the plan seems to have led Saracho to reject it. Although the star plan to clean up the balance sheet had received support from the bank’s Board of Directors, the difficulties involved in deconsolidating the portfolio of non-performing assets and the potential risks that could result for the future owners of the vehicle, are hampering its execution. (…).

Moreover, the real estate company has also been impeded by a more limited appetite than it had hoped for from the investment banks, whose involvement is key. The plan is for the company to be financed through senior bonds, subscribed to by those investors and subordinated debt, which will constitute the remuneration that the bank will receive from the company in the future. At the time, the entity confirmed that the interest expressed by JP Morgan, Morgan Stanley and Deutsche Bank was sufficient to crystallise the project. But, in order to deconsolidate the real estate company, the senior bond tranche must represent a majority and a low uptake from the investment banks is likely to increase the cost of that bond issue.

Ron acknowledged in his public farewell, alongside the CEO, Pedro Larena, that Project Sunrise has suffered certain changes from its original scope, but that Saracho was aware of these, along with other measures.

During the last quarter of 2016, the entity recognised an additional €3,000 million in non-performing assets and allocated €5,692 million to clean up efforts, rather than €4,700 million, the amount it had planned to set aside when it carried out its €2,500 million capital increase last summer. The effort reflects that recognition of a greater volume of toxic assets and also served to cover the costs of the adjustments to branches and staff, the impact of the floor clauses and the unexpected losses in TargoBank (…). Nevertheless, it was insufficient to reach the goal in terms of doubtful debt coverage and provisions for properties.

Shock therapy

Saracho was reportedly aware of all of this. Nevertheless, the banker will start work without a pre-determined road map (…) on the understanding that the bank needs to define a comprehensive shock plan.

Saracho will conduct a detailed analysis to assess the entity’s viability and to define its new strategy. Ron was committed to making the bank smaller, focusing on its profitable business niche of SMEs in Spain and spinning off its subsidiaries in the USA, Mexico and Portugal, where the interest aroused will ensure a positive return on investment – market sources speculate that the private bank, and even the insurance business, are included in this equation.

The sources consulted also say that these changes, if they are undertaken, would help restore solvency, but would not be sufficient to ensure the bank’s future. After a detailed analysis of the situation, Saracho will have to choose the best option for his shareholders from a handful of scenarios.

If he thinks the entity is viable, it is unlikely that he will undertake another capital increase (…), but may include transferring assets to Socimis or integrating them into real estate companies in which the bank holds a stake.

In the worst case scenario, the new manager faces the option of breaking up the group and selling it off in parts or by asset. And whilst a sale to a competitor or a merger is not unthinkable, a priori, it appears to be the least attractive option for shareholders, given the lack of interest in the sector.

Original story: El Economista (by Eva Contreras and Lourdes Miyar)

Translation: Carmel Drake

Goldmans: Property No Longer A Curse For Spain’s Banks

8 February 2017 – Expansión

A recovery in the real estate sector would be great news for the Spanish banking sector, following the disappointment it suffered recently in the courts as a result of the ruling that floor clauses must be applied retroactively. After years covering real estate risk, the entities may be benefitting from a change in trend and could end up having surplus provisions. BBVA and CaixaBank are the best positioned banks, according to a report from Goldman Sachs, which states that the “curse” phase of the property cycle is coming to a close and that we can now look forward to the next “blessing” phase.

A rapid recovery in the real estate sector would imply an overall provision surplus of €1,200 million for the banks. In a weak recovery scenario, the US investment bank limits the provisioning need to €800 million, after adjusting for impairment in 2016. Spain’s main banks had an exposure to the residential sector of €126,300 million at the end of 2015, of which €105,600 million corresponded to doubtful assets.

In the base case scenario, in which the recovery in the real estate sector is weaker than expected, the entity chaired by Francisco González would outperform the rest of the sector, with a provision surplus of €1,292 million.

Base case

Bankia, which would have a capital buffer of €518 million, would be the only other bank (alongside BBVA) that would not need to recognise more provisions against its property portfolio, even in the context of a slow down. Popular would be the hardest hit bank, according to Goldman Sachs, as it would need to recognise additional provisions of €404 million. The other major Spanish entities would need no more than €200 million to cover their real estate risk.

The Bank of Spain estimates that since 2011, the banks’ clean up efforts have eliminated more than 60% of the net exposure to the real estate sector from their individual balance sheets. Since 2008, they have recognised combined provisions amounting to approximately €300,000 million for live and foreclosed loans. (…).

Goldman Sachs estimates that the losses resulting from property would amount to €58,000 million in the worst case scenario, and the sector has already recognised provisions amounting to €47,000 million. The provision deficit would therefore amount to €11,000 million, although it would depend on the strength of the real estate recovery. In fact, the investment bank expects house prices to increase by between 4% and 6% in the short term. (…).

Both the Bank of Spain and the European Central Bank are urging banks to continue cleaning up their balance sheets to put an end to this legacy from the crisis. Despite reducing the impact on solvency levels, the investment bank thinks that Spain’s banks still have a significant and, for the most part, “problematic”, exposure. Net foreclosed assets amounted to €40,200 million at the end of 2015.

Goldman Sachs estimates that Spain’s seven listed banks have covered 45% of the doubtful assets that they hold linked to real estate. By entity, Sabadell (36%) and Popular (37%) have the lowest coverage levels, whilst BBVA is the entity that has the most control over its real estate risk, with a 56% coverage ratio.

Original story: Expansión (by R. Sampedro)

Translation: Carmel Drake