Sabadell Sacrifices Profits to Clean Up its Balance Sheet & Resolve the TSB Crisis

27 July 2018 – Expansión

Banco Sabadell has decided to sacrifice all of the profit that it obtained in the last quarter to clean up its balance sheet and leave behind the impact of the sale of its real estate portfolios and the complex IT integration of TSB.

The entity chaired by Josep Oliu earned €120.6 million during the first half of the year, a figure that represents a decrease of 67.2% with respect to the same period last year (€317.7 million) as a result of having recognised impairments amounting to €806 million. Nevertheless, if we ignore those extraordinary effects, the bank’s recurring net profit grew by 24.4% to €456.8 million.

The entity decided to take a hit on the income statement for the second quarter with a provision amounting to €177 million resulting from the macro sale operation of a real estate portfolio worth €12.2 billion and which was formalised in July, in other words, in the third quarter. In parallel, it decided to recognise a provision amounting to €92.4 million to deal with future compensation payments to customers of its British subsidiary, TSB, who were affected by problems caused by the connection of a new IT platform developed by Sabadell.

With this measure, the bank wants to shelve the technological crisis that it suffered in the United Kingdom and also leave its balance sheet almost completely free of the toxic assets that it accumulated during the economic crisis. Specifically, during the first six months of 2018, Sabadell decreased its problem assets by €7.012 billion, and by €9.547 billion during the last twelve months. Now, the problem balance amounts to €7.911 billion, of which €6.669 billion are doubtful debts of all kind (not only real estate) and €1.242 billion are foreclosed properties. Thus, the ratio of net problem assets over total assets amounts to 1.7%. The default ratio following the portfolio sales amounts to 4.5%.

As at 30 June 2018, the bank’s fully loaded CET1 capital ratio amounted to 11%, although that will rise to 11.2% following the transfer of the majority of the toxic assets, closed in July.

The bank led by Jaime Guardiola has sold the bulk of its non-performing and foreclosed loans to Cerberus, with whom it is going to create a joint venture in which the fund will hold an 80% stake. The entity has also sold portfolios to Deutsche Bank and to Carval Investors. Solvia has not been included in any of those transactions and will continue to be fully owned by Sabadell.

Between January and June, Sabadell increased the volume of its live loan book by 3.7% thanks to a boost from SMEs and mortgages to individuals in Spain. Customer funds increased by 2.8% YoY driven by demand deposit accounts, which amounted to €105.4 billion. Off-balance sheet funds also grew, by 1.2%, during the quarter, primarily due to investment funds.

During the first half of the year, Sabadell’s interest margin remained stable, given that the entity earned practically the same amount as it did in the six months to June 2017 (€1.81 billion). The bank has been affected by exchange differences and a reduction in results from financial operations (-51%); by contrast, fee income grew by 6%. Thus, the gross margin fell by 8.8% to €2.631 billion.

The reaction of investors to these results has been negative. Sabadell’s share price fell by 2.99%, the third largest drop on the Ibex, to €1.37. So far this year, the bank’s share price has depreciated by more than 14%.

Original story: Expansión (by Sergi Saborit)

Translation: Carmel Drake

Bankia Analyses Block Sale Of Entire Real Estate Portfolio

7 November 2017 – El Economista

Spain’s banks do not want to pass up the opportunity that currently exists in the market to get rid of their toxic assets linked to the real estate sector as quickly as possible. Funds’ interest in acquiring properties and problem loans continues at the same level as during the summer, when Santander reached an agreement to transfer almost all of Popular’s real estate portfolio, worth €30,000 million in gross terms, to Blackstone.

BBVA announced a few weeks ago that it is negotiating with Cerberus to close a similar operation, although it did not share any details about the perimeter in that case. And now, it is Bankia’s turn to tread the same path and resume Project Big Bang to a certain extent, after it was suspended two years ago. The nationalised entity is currently analysing putting up for sale all of the real estate assets that it still holds on its balance sheet. The transaction would include the assets it inherits from BMN once both groups have merged at the end of this year.

This is one of the “strategic priorities” for the next few months, said Bankia’s CEO, José Sevilla, speaking recently at a press conference with analysts. He assured his audience that investors have an appetite for this type of large portfolio at the moment, unlike two years ago.

Just over €6,000 million of assets

The volume of the operation, if it goes ahead, in the end, will be significantly smaller than the deal closed by Santander, given that both Bankia and BMN have fewer foreclosed assets and doubtful debts. A significant part of their balances was transferred to Sareb in 2012 and 2013, under the framework of the bank rescue. Once the group chaired by José Ignacio Goirigolzarri has absorbed the Levante-based entity, it will have around €6,300 million in loans to property developers and foreclosed assets in total, a third of all the non-profitable assets – which include doubtful loans granted to other sectors.

Specifically, Bankia has €3,150 million in properties, with a coverage ratio of 34%, whilst BMN has €1,470 million, with provisions covering 28% of its risk. In terms of financing to property developers, the volume managed by Bankia amounts to almost €1,100 million and the amount handled by the bank led by Carlos Egea amounts to approximately €600 million.

Commercial focus on companies with a service platform

Between now and the end of the year, Bankia is going to place its commercial focus on the business segment, for which it has created a platform for services that complement financing. According to the director of this business, Gonzalo Alcubilla, access to loans is no longer a concern for companies and so now, they are asking about how to enter new markets and secure new clients to increase their turnover.

In fact, Bankia currently rejects fewer than 10% of the loan requests its receives. In this context, it has created “Soluciona Empresas”, a pack of free digital tools that helps businesses take management decisions, such as advice regarding exporting overseas. The platform may be used both by companies that are clients of the entity as well as by those that are not, according to Alcubilla speaking on Monday at the presentation of the instrument. The tools are grouped together for three purposes: to sell more, manage risks and obtain resources.

Original story: El Economista (by Fernando Tadeo)

Translation: Carmel Drake

Bankia Considers Rapid Sale Of BMN’s Property Portfolio

13 October 2017 – Cinco Días

Bankia is currently considering how it will deal with the exposure to real estate through BMN that it will end up with following the planned integration of the two entities at the beginning of 2018. The bank chaired by José Ignacio Goirigolzarri is considering the rapid sale of BMN’s problem assets to one of the opportunistic funds that typically participate in these types of operations.

Goirigolzarri’s entity has already made contact with several of the intermediaries that typically advise on these types of transaction, according to sources familiar with Bankia’s intentions, to sound out the options available. These intermediaries include large consultancy firms and several investment banks. The bank has reportedly asked all of these companies to share their ideas about how to best handle a potential sale.

Bankia’s initial idea involves carrying out a rapid operation, similar to the deal undertaken by Santander in August, with the sale of the portfolio that it inherited from Popular that it transferred to the fund Blackstone in just six weeks. That agile move was very well received by the market.

Unlike in the case of Popular, BMN’s exposure to property is considerably less. The entity owns around €1,100 million in net foreclosed assets, according to data about the merger of both entities reported by Bankia in June. The entity has a coverage ratio of 28% over its foreclosed assets and 40% in the case of its doubtful debts (somewhat lower than the average for the sector, which stands at around 50%).

Moreover, of the total net foreclosed assets, 64.4% correspond to finished homes and 19.1% relate to land. In terms of the entity’s total loan book, which amounts to €21,900 million, only 2.7% relates to property developer loans.

The merger of Bankia and BMN was approved by the General Shareholders’ Meetings of both entities in September. The authorities are expected to declare their approval of the union in December and the definitive integration is forecast to take place at the beginning of 2018. The operation will be articulated through the handover of 205.6 million newly issued shares in Bankia to the shareholders of BMN, which effectively means assigning a value of €825 million to the latter (0.41 times its book value).

As such, BMN’s shareholders will hold 6.7% of Bankia’s share capital. Following the merger, Bankia will be the fourth largest entity in the country, behind Santander, BBVA and Caixabank (…).

Another of the differences compared to the operation involving Popular is that BMN does not have its own servicer. In the case of the bank acquired by Santander, it repurchased the 51% stake in Aliseda that was held by the funds Värde Partners and Kennedy Wilson, to subsequently include it in the operation that was then sealed with Blackstone.

In 2014, BMN sold its real estate asset management company Inmare to the servicer Aktua (controlled by the Norwegian fund Lindorff), to become strategic partners in the management of those assets.

The most likely scenario is that Bankia will execute the sale of the assets proceeding from BMN as the single transfer of a portfolio, given that it no longer owns a servicer. The entity chaired by Goirigolzarri declined to comment on any possible operation given that the merger has not yet been approved by the authorities (…).

The potential buyers will presumably include the usual suspects, such as Apollo, Oaktree, Bain, Cerberus, Blackstone, Lone Star, Castlelake, Värde Partners, Lindorff, TPG and Goldman Sachs.

Original story: Cinco Días (by Alfonso Simón Ruiz)

Translation: Carmel Drake

Banks’ Losses From RE Assets Fell By 26% In H1

23 August 2016 – El Economista

The losses suffered by Spain’s main banks in their real estate businesses are finally easing. During the first half of the year, those losses decreased substantially, by 26%. Even so, the figure is still high, amounting to €1,618 million in H1. In June last year, the losses stood at almost €2,200 million.

The five largest entities (Bankia is not included because it transferred the majority of its property-related activity to Sareb in 2012) are benefitting from the recovery of the economy, which is causing fewer property developers and families to enter into default, as well as leading to higher property sales. In addition, house prices are now rising in some Spanish cities, which is helping to improve revenues (from property sales).

In fact, between January and June, CaixaBank, BBVA, Santander, Sabadell and Popular managed to reduce the volume of foreclosed assets resulting from unpaid loans for the first time since the crisis, with a timid decrease of 0.02%, in gross terms – before provisions for valuation losses -. The portfolio of properties and land owned by those five groups in Spain decreased to €67,362 million.

All of the entities, with the exception of Sabadell, managed to cut their real estate losses. The Catalan bank increased its losses during the period by almost 24% to €427 million, which “ate up” half of the profits before tax that it had generated from its banking business in Spain. Nevertheless, that deficit was partially offset by gains made in the UK following its acquisition of TSB in 2015.

Foreclosed assets

By contrast, Sabadell is the group that has reduced its portfolio of foreclosed assets the most, by more than 6%, as a result of higher sales. In the second quarter of the year alone, the bank chaired by Josep Oliu increased its revenues from the sale of foreclosed assets by 16%, to €475 million.

CaixaBank is the entity that reduced its losses from the real estate sector the most, recording a decrease of 58%. This property segment generated losses for the Catalan group amounting to €355 million, after its injection of significant resources into its main property developer, BuildingCenter, in recent years. (…).

Of the groups that managed to reduce their losses from real estate, Popular is the bank that experienced the lowest decrease, of 7.7%. The entity was forced to modify its strategy in this segment in the face of pressure from regulators and the markets. (…).

Popular, which ruled out the option of accelerating its divestment from homes during the first few years of the crisis, on the basis that it expected the sector to recover quickly, has recently designed a new plan to reduce its exposure to these types of assets as much as possible. It is now aiming to reduce its doubtful loans and homes balance by €15,000 million by 2018. (…).

The bank chaired by Ángel Ron has the highest volume of foreclosed assets on its balance sheet. In June, the value of its portfolio amounted to €16,473 million, which represented a YoY increase of 1.6%.

Meanwhile, the two largest entities, Santander and BBVA, decreased their losses from real estate by 10% and 30%, respectively. The evolution of their foreclosed assets, however, was different. Whilst the former increased its balance, by 4.2%, the latter decreased its balance by almost 1%. Despite the increase, Santander has the smallest portfolio of homes and land of the five largest financial groups in the country, mainly because it was not involved in the acquisition of any weak entities during the crisis (…).

Original story: El Economista (by Fernando Tadeo)

Translation: Carmel Drake

Bank Of Spain: Default Rate Fell To 10.2% In 2015

22 February 2016 – Cinco Días

The default rate of loans granted by banks, savings banks, credit cooperatives and other financial entities operating in Spain ended last year with another decrease, taking it down to 10.12%, its lowest level since July 2012, compared with 10.35% in November and 12.51% at the end of 2014.

According to the provisional data published on Thursday by the Bank of Spain, this latest decrease in the default rate comes after the cumulative unpaid loan balance in the sector decreased by more than €4,000 million (in December), to €134,327 million, in line with the drop in the total loan balance granted by all of these institutions, which decreased slightly to €1,327 billion, from €1,342 billion a month earlier.

The loan portfolio held by Spain’s financial sector has decreased by just over €53,000 million since the end of 2014, from €1,380 billion, as a result of the deleveraging performed by families and companies alike.

Meanwhile, doubtful debts have recorded a dramatic cut over the last 12 months, falling by €38,276 million from their balance at the end of 2014 (€172,603 million).

Moreover, the aggregate arrears recorded by banks, savings banks and cooperatives, excluding credit institutions (EFCs) also improved at the end of 2015, down to 10.20%, from 10.40% in November and 12.61% in December 2014.

In this case, the balance of doubtful debts also decreased to €1,274 billion, from €1,289 billion a month earlier.

In the case of credit institutions (EFCs), the percentage of bad debts decreased to 7.07%, its lowest level for seven years, since February 2009, after it had remained at 8.69% for three consecutive months.

The loan portfolio of these entities, whose main business is the financing of large consumer goods, such as cars, furniture, electronic goods and appliances, continued to grow, in line with the trend during the year, to reach €39,859 million.

By contrast, unpaid debts decreased to €2,818 million, down from €2,925 million, which allowed the decrease in the default rate.

Original story: Cinco Días

Translation: Carmel Drake