Popular Sells 2 Doubtful Debt Portfolios To Apollo & Blackstone

13 January 2017 – Expansión

Banco Popular has sold two debt portfolios to the funds Apollo and Blackstone for the combined amount for more than €620 million, according to sources close to the operation.

Specifically, the entity has sold one €220 million debt portfolio, secured by hotel assets, to the Apollo group; and another to Blackstone, for more than €400 million, secured by property developments, primarily in the residential sector, containing more than 750 homes and a similar number of parking spaces and storerooms.

Although the portfolio sales is one of the sales channels established by the bank for the divestment of non-productive assets, it is the first time that Popular has sold any doubtful portfolios, which demonstrates a change in its strategy towards the management of non-productive assets, besides the traditional route of repossession and subsequent sale of the collateral, which has been applied in most cases to date.

The portfolios sold have been grouped into homogenous assets to simplify their analysis and optimise their price. The sales have been conducted at coverage levels in line with the objectives of Popular’s Business Plan.

In addition, another €100 million of refinanced assets under special surveillance have been sold with the aim of reducing the risk profile of the portfolio and freeing up capital.

During the first nine months of 2016, Popular maintained a steady pace of property sales, amounting to €1,554 million in total.

In its Business Plan for 2016-2018, Popular has set itself the target of reducing its non-productive assets by 45%. Specifically, the bank is aiming to reduce its non-productive asset balance by €15,000 million by 2018, placing its strategic focus on maximising the value of those assets.

Original story: Expansión

Translation: Carmel Drake

Bankia & Santander Lead Decrease In Mortgage Default Rate

12 September 2016 – El Economista

The economic recovery is substantially easing the burden of provisions that the banks are making against their non-performing loans. The volume of bad debts have been decreasing gradually over the last few months, thanks to the overall improvement in the financial circumstances of families and companies.

An important part of this respite is coming from the mortgage segment. Families now hold financing to acquire homes amounting to just over €525,000 million in total. Unemployment, which wrought havoc during the crisis, had increased the default rate to more than 6%. But that trend changed at the end of 2014. Since then, the default rate of these types of loans has decreased to 4.7%, on average. In other words, the volume of mortgages with delayed repayments has decreased to €25,000 million.

Not all of the banks have managed to benefit in the same way from the improvement in Spaniards’ fortunes. Bankia and Santander are the entities that have benefitted the most over the last year. Between June 2015 and June 2016, Bankia’s default rate decreased by almost a quarter, from 6.76% to 5.02%, and by nearly a half since its historical peak in 2014. Even so, the absolute percentage of the nationalised group still exceeds the system average.

The decrease in Bankia’s default rate has come at a time when the bank is significantly reducing the volume of loans it grants to acquire homes. In the case of Bankia, the cut in the volume of financing is similar to that recorded in the sector. It has decreased by 4.3% in twelve months (…).

Since 2012, the nationalised group’s strategy has involved rebalancing its credit portfolio, with a drop in mortgages and an increase in loans to SMEs and individuals.

In the case of Santander, the default rate has decreased by 0.81 percentage points to 4.59% over the last twelve months, allowing the bank to maintain a ratio that it slightly lower than that of its rivals. In 2013, the Cantabrian entity’s default rate (6.7%) exceeded the sector average. Since then, the decrease has been gradual.

The group chaired by Ana Botín has also reduced its portfolio of doubtful debts, whilst its volume of mortgages has decreased by 3.4%. In fact, of the major entities that have published their data so far, Santander and Bankia are the ones that have reported the most significant decrease in financing.

Three banks, BBVA, CaixaBank and Ibercaja, have gone against the trend in the sector, suffering slight increases in their respective default rates. The first has been hurt by the incorporation of Catalunya Banc in April 2015, which is leading to an increase in its impairments, even through the operation to acquire the entity excluded the most harmful mortgages. They were transferred to a fund owned by Blackstone with certain government guarantees provided by the public rescue fund (Frob).

Despite the increases, CaixaBank and Ibercaja have two of the lowest default rates in the sector. In both cases, the default rate of home loans to individuals fell below 4% at the end of June this year.

For most entities, the volume of loans are falling at rate of less than 2%, as a consequence of the boost in new business and the open war to secure clients. At Unicaja, the decrease has been less than 1%.

Market share

BBVA is still the leader of this segment, with more than €89,437 million loans granted to households to buy a home, representing a market share of 17% (…). It is followed by CaixaBank, with financing lines amounting to €88,557 million (17%) and Bankia with €62,200 million (12%). Santander is ranked fourth, accounting for less than 10% of the mortgage market. (…).

The main entities have a combined balance of foreclosed homes amounting to more than €17,000 million. The bank that holds the largest portfolio of foreclosed homes is BBVA, with almost €4,500 million. CaixaBank is ranked in second place, with more than €2,762 million, whilst Bankia, in third place, has €2,700 million. (…).

Original story: El Economista (by Fernando Tadeo)

Translation: Carmel Drake

Bank of Spain: Default Rate Falls To 9.44% In June

19 August 2016 – Expansión

Yesterday, the Bank of Spain published provisional data for 30 June 2016, which shows that the default rate decreased for the fifth consecutive month, to 9.44%, its lowest level since June 2012. The figure includes the change in methodology for classifying Financial Credit Establishments (EFC), which are no longer included within the category of credit institutions. In this way, the default rate has now been below the 10% threshold for the fourth consecutive month.

The decrease in the default rate has come despite the fact that total credit in the sector rose by 1.2%, the first increase since November 2015. Specifically, total credit increased by €15,682 million to €1.298 billion. “The decrease in the default rate coincides with the strong growth in new loans to SMEs and households”, said José Luis Martínez, spokesperson for the Spanish Banking Association (AEB).

Doubtful debt

The doubtful debt balance sank to €122,508 million, down by €3,689 million compared with the previous month, its lowest level since June 2011. Financial entities have decreased their combined doubtful debt balance by more than €70,000 million since the peak in 2013, when it exceeded €200,000 million.

Therefore, the clean up of the financial sector is now a reality. Nevertheless, some entities have performed the process more quickly than others. In the last year, Sabadell and Bankia stand out as the entities that have got rid of the most doubtful assets, having reduced their doubtful balances by almost a quarter each. Specifically, the Catalan entity has reduced its doubtful debts by 23.9% and Bankia by 23.2%. Three other Spanish entities reduced their doubtful balances by at least a fifth between June 2015 and June 2016, namely: Liberbank (22.4%), Abanca (22%) and CaixaBank (20%).

Several factors have contributed to the reduction in the doubtful debt balance. As well as the macroeconomic improvement seen in recent years, the entities have accelerated their portfolio sales to large funds.

Another way in which the banks have shrunk their large doubtful balances has been through foreclosures, especially of unpaid loans to property developers overdue by more than one year.

Original story: Expansión (by D.B.)

Translation: Carmel Drake

Bank Of Spain: Default Rate Falls To 9.84% In May

19 July 2016 – Expansión

The default rate of loans granted by banks, savings banks and cooperatives to individuals and companies decreased to 9.84% in May, returning to a level not seen since July 2012, when it amounted to 9.86%, according to provisional data published on Monday by the Bank of Spain.

This figure includes a methodological change in the classification of Lending Institutions (Establecimientos Financieros de Crédito or EFCs), which are no longer considered within the same category as credit institutions.

The total doubtful debt figure fell to €126,152 million in May, down by €1,583 million from the previous month. In one year, the volume of doubtful loans has decreased by €27,999 million, equivalent to 18.16%.

In this way, the banks’ default rate has decreased by 3.76 percentage points with respect to the historical maximum recorded in December 2013, when it stood at 13.6%.

The decrease in the default rate has come about, in part, thanks to the continuation of the decline in the overall credit balance in the sector in May. Specifically, total loans decreased by €76,786 million, or 0.52%, to €1,281 billion. In YoY terms, overall credit has decreased by 5.06%.

If we exclude the methodological data, the NPL ratio stands at 10.04%, given that the loan balance in this scenario decreases to €1,256 billion.

In line with default rate, financial institutions have cut their provisions by €762 million with respect to the previous month, down to €74,664 million. A year ago, this “buffer” amounted to €91,836 million.

Original story: Expansión

Translation: Carmel Drake

Bankia, Sabadell & CaixaBank Have Sold €17,000M Of Problem Assets

27 April 2016 – Expansión

Spain’s banks still need to get rid of €350,000 million of problem assets from their balance sheets, despite having already divested €65,000 million over the last five years. The leaders in the disposal of non-core assets so far have been CaixaBank, Sabadell and Bankia, although experts indicate that divestment of toxic loans and foreclosed assets may taken another ten more years.

That was the view of the Heads of Advisory for Financial Divestments at KPMG, Deloitte, N+1 and PwC. “After ten years in this market, I think that we still have another ten years worth of divestments ahead. This market is here to stay”, said Joel Grau yesterday, Partner and Co-founder of N+1’s Corporate Portfolio Advisors, at an event organised by Europa Press and Servihabitat.

In recent times, the rate of asset sales has amounted to between €16,000 million and €22,000 million per year and experts at KPMG predict that this year will be the second best in the history of the sector in Spain: “We expect to see an increase of 7% in terms of portfolio sales with respect to 2015, to reach €19,500 million, with the weight of mortgage portfolios and foreclosed assets accounting for 49% of the total”, said Amparo Solía, the Partner responsible for Corporate in the Finance and Real Estate Sector at KPMG, the consultancy firm that participates in half of all operations.

Of that figure of almost €20,000 million, there are currently almost €15,000 million in the market, according to Jaime Bergaz, the Partner responsible for Deals – Financial Sector at PwC. Of that amount, around half relates to portfolios with a real estate component: debt to property developers, mortgages and foreclosed assets.

Once again this year, the entities that are proving to be most active in the divestment market are Sabadell, CaixaBank and Bankia. According to KPMG, those three financial groups have sold off problem assets amounting to €17,000 million in the last three years, which represents 30% of all of the assets sold by Spain’s banks.

Bankia is the leader in the ranking, with €9,000 million sold in the last three years, according to the different consultancy firms, followed by Sabadell, with €4,500 million and CaixaBank, with €4,000 million. (…).

Sareb, BMN, Santander and BBVA have almost sold portfolios worth more than €2,000 million in the last three years.

In addition, Sabadell currently has two portfolios up for sale worth €1,300 million and is studying the possibility of bringing a third onto the market worth €1,700 million. Meanwhile, CaixaBank has an operation underway involving a portfolio of doubtful debts to property developers, worth €800 million; and Bankia is considering launching the sale of a package of doubtful mortgages. Moreover, Cajamar is also proving very active; Abanca has a portfolio of NPLs up for sale; and Popular is expected to be involved in some major deals during the second half of the year.

Solía, from KPMG and Grau, from N+1, predict a higher volume of portfolio sales in 2017, due to the new provisioning circular and the banks’ need to increase their returns.

Ahead of this improvement, funds are already managing 80% of the banks’ problem assets, through platforms that they have been buying up in recent years. Investors paid €4,000 million for the servicers and have absorbed 3,200 jobs from the financial institutions.

The acquired platforms include Altamira, in which Apollo owns an 85% stake; Aliseda, in which Värde and Kennedy Wilson hold a 51% stake; Servihabitat, of which 51% is controlled by TPG; Haya Real Estate, which Cerberus acquired from Bankia; and Aktua, which Centerbridge bought from Banesto and is now selling to Lindorff. (…).

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Bankia Reduced Its Doubtful Loans By €2,000M In 2015

11 January 2016 – Expansión

The BFA-Bankia group reduced its doubtful debt balance by more than €2,000 million in 2015 through the sale of several loan portfolios. According to the entity, these operations allowed the bank to improve the quality of its balance sheet, raise liquidity and free up resources to grant new credit.

During the year, the bank completed four major operations involving the sale of loan portfolios with a total value of almost €2,800 million.

In May, BFA-Bankia agreed the sale of a portfolio of doubtful property developer loans amounting to €558 million to the fund Sankaty. Some of those loans were secured by real estate collateral.

A month later, the bank sold a portfolio of loans secured by hotel assets amounting to €383 million. The portfolio contained 91 operations in total, linked to 45 assets, and was sold to Bank of America and the investor Davidson Kemper.

In September, the bank closed the largest of its operations, by selling a portfolio of loans linked to the real estate sector amounting to €1,206 million, of which €986.8 million was secured. The purchasers in this case were the funds Oaktree and Chenavari.

In the last few weeks, BFA-Bankia has transferred a loan portfolio amounting to €645.1 million, all granted to the business sector and partly secured by real estate collateral, to Deutsche Bank.

Sources at Bankia highlight that, in order to maximise the prices obtained, a competitive process has been adopted for all of the portfolio sales between prestigious institutional investors and financial institutions.

Original story: Expansión

Translation: Carmel Drake

Project Big Bang: Bankia Open To Offers For Its €4,200M Portfolio

29 July 2015 – Expansión

Big Bang. That is the name of the large operation that Bankia has launched to sell a huge portfolio of real estate assets, including foreclosed residential and commercial properties, whose gross value currently amounts to €4,200 million.

These are assets that were not transferred to Sareb back in their day because they did not fit in its perimeter.

After the summer, the entity led by José Ignacio Goirigolzarri will evaluate offers submitted by potential buyers to decide whether to go ahead with this project, which represents the largest single divestment project launched to date by the nationalised entity. Its successful completion would represent a definitive boost to the clean up of Bankia’s balance sheet. Blackstone, Lone Star and Apollo have all expressed interest in the portfolio.

“By September, we will have received clear expressions of interest”, revealed the CEO of Bankia, José Sevilla (pictured above), at a presentation to analysts of the results for the first half of the year, which showed an attributable profit of €556 million, up 11.5% on the same period last year. “Then we will decide whether the operation makes sense or not”, he added. (…)

Sources close to the operation state that the portfolio is flexible, in the sense that, it may be sold in one block or divided into several sub-portfolios based on asset type, to suit investors’ preferences.

After accounting for provisions, the net book value of the foreclosed portfolio amounts to €2,875 million. The majority of the assets, worth €2,122 million, were originally loans for house purchases, whilst those relating to real estate construction and development amount to €315 million – most related to finished buildings, but some also corresponds to land.

During the first half of 2015, the entity sold 4,135 properties, more than twice the volume sold in the same period last year (1,919), at discounts of between 30% to 35%. This may serve as a benchmark for the sales price that Bankia expects to obtain for the Big Bang portfolio. (…).

The act of managing the foreclosed assets represents a cost for the entity, whose objective is to use some of the funds it obtains from the sale to finance investments that boost its business, which is now focusing on granting credit to consumers and SMEs. (…).

In parallel, Bankia wants to accelerate the sale of its doubtful debt portfolios; and it expects to achieve the objective it has set of reducing the balance by €2,000 million in 2015. (…).

During H1 2015, the entity reduced its doubtful balances by €1,239 million, bringing the total down to €15,310 million and thus established a default rate of 12.2%, which represents a decrease of 0.7 p.p. since the end of 2014. Moreover, recoveries (€2,490 million) exceeded gross defaults (€1,720 million) during the six months to June.

Original story: Expansión (by Alicia Crespo)

Translation: Carmel Drake

BBVA’s Purchase Of Catalunya Banc Is “Unblocked”

16 April 2015 – El Mundo

Yesterday, the US fund Blackstone finalised its purchase of a portfolio of problematic assets from Catalunya Banc (which is known by its commercial name: ‘Catalunya Caixa’) for €4,123 million. This transaction unblocks the acquisition of that entity by BBVA, which now just needs to be approved by the EU’s competition authorities.

The Fund for Orderly Bank Restructuring (the FROB) confirmed yesterday that the transaction had been conducted through the transfer of the portfolio to an asset securitisation fund, with the support of the public body itself, which sits under the Ministry of the Economy.

Specifically, the FROB will subscribe to a bond issue amounting to €524.9 million, whilst Blackstone will contribute €3,598.4 million. As a result of this transaction, the US fund will acquire a portfolio of problematic loans amounting to almost €6,400 million. Last summer, the portfolio aroused (a great deal of) interest from several funds that specialise in the management of doubtful debts.

Boost to business

The completion of this sale was a necessary condition for BBVA’s purchase of Catalunya Banc to go ahead. BBVA won the competitive tender against Santander and CaixaBank.

The entity chaired by Francisco González offered €1,187 million for the ill-fated savings bank, although the final price will be lower once cumulative tax credits have been deducted and because a series of guarantees will take effect in the event that the assets acquired are impaired by more than expected.

This purchase has allowed BBVA to gain a significant presence in Catalunya, where it is now the second largest entity by market share (accounting for almost 30%), exceeded only by CaixaBank. The transaction has also allowed BBVA to boost its asset management business, by adding around €2,000 million of assets under management.

Just like in the case of Novagalicia, the tender for Catalunya Banc has received criticism from those who believe that the State has rushed to sell of both of the entities. The losses of the Catalan entity alone amounted to €11,500 million.

Original story: El Mundo (by J. G. Gallego)

Translation: Carmel Drake

Big Banks Record Losses Of €3,600m, Hit By Real Estate

9 February 2015 – El Mundo

The Ibex-listed financial institutions have doubtful balances and a portfolio of foreclosed homes amounting to €120,000 million.

During 2014, they sold more than 20,000 properties for a combined value of €11,700 million.

It will take Spanish banks two more years to “digest” the property binge that they enjoyed during the years of economic boom. The annual accounts of the listed entities – with the exception of Bankia, which has not yet published its results – show that, despite the recovery in the banking sector, the real estate sector continues to be a heavy burden – it generated losses of more than €3,600 million in 2014.

The indicators show signs of optimism, including the decrease in the default rate – which currently stands at 12.75% for the sector as a whole – and the decrease in doubtful assets by more than €20,000 million over the last year. However, the banks recognise that their exposure to the real estate sector will continue to be a hindrance throughout 2015 and 2016 at least, two years during which the market is expected to absorb most of the foreclosed assets (amounting to €60,000 million) accumulated by Santander, BBVA, Caixabank, Bankia, Sabadell, Popular and Bankinter.

The gross credit exposure to developers of these seven entities (all of which are listed on the Ibex) amounted to €103,000 million at the end of last year, although it should be noted that the figure for Bankia relates to the third quarter 2014.

From this quantity, just over €61,000 million is classified as doubtful (i.e. a non-payment of some kind has been recocorded) or sub-standard (credits that are currently being paid, but which are expected to go into arrears). According to the entities, this figure is lower than last year, due to the refinancings, recoveries and maturities that have taken place over the last year. But it is still a volume that requires a significant provision balance to cover the potential losses. Overall, the seven banks analysed recorded a total coverage against doubtful debts of €38,900 million at the end of 2014.

Last year was the first year in which the entities significantly reduced their provision coverage, following five years of crisis. “The results from the real estate sector clearly show the less negative impact that has resulted from the clean up of loans to developers and foreclosed real estate assets” says BBVA, a bank that recorded losses of €876 million in this area. Despite the size of the figure, it is 30% smaller than the €1,252 million losses recorded by the entity a year earlier.

Caixabank is the entity whose results have been hardest hit by the activity in the real estate sector. On 30 January, its CEO, Gonzalo Cortázar, predicted that the housing burden would have an impact on its financial results in 2015 and 2016 that this impact would “still be significant, although the digestion will be prolonged on a decreasing scale.

Santander has managed to reduce its loans to developers by 34% in the last year and has increased its coverage to 54%, but its annual results are still negative, with the entity led by Ana Botín recording a loss of €583 million.

Sabadell’s losses were even greater – €999 million and it has a gross exposure to the real estate market of €26,958 million, the highest in the sector, taking into account the foreclosed assets of CAM.

Fewer discounts

Bankia, Bankinter and Popular do not publish results about their respective real estate businesses. Popular is the bank that holds the greatest number of problem assets (doubtful and foreclosed assets) in proportion to the size of its balance sheet. It has loans amounting to €13,061 million in this category, with a coverage level of 44%. But the figures that really jump out are the volume of foreclosed homes, developments and land (€14,169 million) held by the entity, which closed the year with sales of €1,503 million.

Last year, some entities sold some of their house sale divisions. Altogether, these seven entities offloaded more than 20,000 units for a total value of €11,700 million. Sabadell was the most active bank in terms of house sales, generating €2,744 million. Various sources agree that 2014 was characterised by a reduction in the discounts applied, which in some cases, meant that the income received was actually higher than the recorded book value.

Some entities, such as BBVA and Sabadell, have an Asset Protection Scheme (Esquema de Protección de Activos or EPA) in place, following their acquisitions of Unnim and CAM, respectively. This insurance allows them to cover any additional deteriorations on their balance sheets over the next few years, through the Frob. Sabadell has recognised that it may start to use this financial cushion this year.

With the exception of Bankia, none of these companies has transferred assets to Sareb, the bad bank that absorbed loans to developers, and foreclosed homes and land, from entities that received public aid in the rescue of 2012.

Original story: El Mundo (by Javier G. Gallego)

Translation: Carmel Drake

Caixabank Will Need 6 Years To ‘Digest’ Its Toxic Assets

2 February 2015 – Voz Pópuli

Caixabank’s real estate arm generated losses of €1,148 million in 2014. The volume of foreclosed assets increased to €6,719 million, above the figure in 2013. The entity did improve its coverage levels. However, profitability barely reached 2.7%.

Caixabank’s surfeit of toxic assets peaked at close to €30,000 million. It managed to trim that down to €20,110 million by the end of 2014. However, progress continues to be slow. The entity forecasts that its balance of doubtful real estate assets generated during the real estate boom will not be fully run down for another six years, if the current pace of asset sales is maintained.

The entity chaired by Isidro Fainé marketed 23,400 properties for rental and sale in 2014, which resulted in turnover of €2,512 million (i.e. a 15% increase for rentals and a 28% increase for sales). If we add the properties marketed by developers that are financed by Caixabank, these figures increase to 35,870 properties and turnover of €5,432 million. However, this intense activity generated losses of €1,148 million for the real estate division, a business that has a delinquency rate of 58.7%. The entity’s overall delinquency rate is 9.7%, having dropped down from double-digit levels last year.

Caixabank succeeded in reducing its default rate by two percentage points during the course of the year, to 9.7%. This reduction was made possible by the fact that the decrease in doubtful debts was greater than the contraction in new credits, which dropped by 4.8% during the year. Even so, the bank led by Gonzalo Gortázar emphasised the changing trend observed in the last quarter of the year, and the fact that its credit balance rose by 1.4% compared with the same period in 2013. Nevertheless, it does not expect credit balances to grow in the sector in 2015.

A two-phase approach for getting rid of toxic assets

Caixabank’s exit from this stock of toxic assets (€20,110 million) will take place in two stages. Over the next two years, its real estate business will continue to make significant losses, which will weigh down on Caixabank’s income statement, explains its CEO, Gonzalo Gortázar. The largest impact on the balance sheet will take place in 2017 when the doubtful properties become foreclosed assets. “On average, it takes 4 years to sell a foreclosed property”, explained Gortázar.

As at 2014 year-end, Caixabank had €6,719 million foreclosed assets, a little over €650 million more than at the end of 2013. This increase is explained in part by the decrease in doubtful assets. The Catalan entity recorded four consecutive quarters of declining doubtful assets. These foreclosed assets had a coverage ratio of 55%, 140 basis points more than at the end of 2013.

In terms of solvency, Caixabank closed 2014 with a core capital ratio of 13.1% (measured in accordance with the Basel III framework), an increase of 128 basis points on the previous year. The fully loaded ratio, with all the deductions that will apply in the near future until 2019, was 12.3%. Nevertheless, these good results contrast against an excessively low level of profitability. Caixabank’s ROE stood at 2.7% at the end of December, a long way off of the ratios recorded by other entities, such as Bankia, which recorded a ratio of 8.4% at the end of September.

Indeed, the quest for profitability will be one of the main priorities of the strategic plan that the entity will present in London on 3 March. The market is now expecting entities to record double-digit ROEs.

Original story: Voz Pópuli (by Miguel Alba)

Translation: Carmel Drake