Tag: ECB

The “Brick” Returns To GDP

24/12/2014 – El Mundo

The construction sector generates new growth after six years of decline. The “strength” of consumption and investment boosts the economy by 0.6% this year, the largest quarterly increase in the crisis.

Yesterday, the Bank of Spain affirmed the economic upturn of the national economy in its December economic bulletin, confirming that Gross Domestic Product (GDP) will grow by 0.6% in the fourth quarter –the biggest rise since the start of the crisis–, and the year will close with an increase of 1.4%. To achieve renewed economic stability, Spain will rely on the same factors as prior to the crisis: the “strength of private domestic demand” and construction, marking the end of its cutbacks “after six years of contraction.”

Thus, Spain will return to the economic model that allowed significant increases in GDP in the late 1990’s and beginning of the new millenium; years of success that came to an abrupt end when the crisis hit. It is true, as pointed out by the Bank of Spain, that the outlook for the construction sector “shows, in any case, signs of very moderate recovery, not yet free from uncertainties”; however, “the indicators relating to investment point to the end” of a process that has caused the weight of this sector in GDP to fall by more than 50% compared to 2006.

Also, within the labor market, the institution notes that, “In terms of monthly rates, the construction sector will see a notable rise in the rate of job creation.” Furthermore, the document states that “A slight increase is observed in approvals for new residential construction projects.”

As for domestic demand, the institution led by Luis María Linde emphasizes its “strength,” while asserting that it has maintained the “dynamism” thanks in part to “the positive growth in confidence and employment.” The Bank also adds that “household spending has increased in the fourth quarter, both in terms of consumption and in residential investment, which may have experienced a small increase.”

The positive performance in domestic demand stems from the fall in external demand that, during the worst years of the crisis, was one of the few pieces of positive news. In fact, the Bank of Spain said that, “If the forecasts are confirmed, the foreign sector will have contributed negatively to GDP in 2014,” something that had not happened since 2007, i.e., since before the economic turmoil began to be noticeable in Spain.

This dataset comes to agree with the many economists and analysts who in recent months have ensured that the Government has missed a great opportunity to change and modernize the national economic model. In addition, one of the “fundamental bases” of recovery, warns the Bank of Spain, is wage moderation. Therefore, “the return procedures — based on generalized wage increases that extend uniformly to all sectors and companies — would be a step back that could disrupt the recovery of competitiveness of the Spanish economy.”

The December economic bulletin also addresses the decline in the inflation rate, “which has intensified in the fourth quarter, beyond what was expected a few months ago, as a derivation of the acceleration of falling oil prices in the final stretch of the year.” This has led the Bank of Spain to correct its forecast for oil prices, which in July stood above 107 USD for the next year and has now lowered to 68 USD.

To maintain moderation of crude oil, the CPI will continue “in negative territory during the early part of 2015” and the current deflationary rather than disinflationary context will continue, because the organization does not relate at any time this phenomenon with the Spanish economy. It does, however, relate it to the Eurozone, where this circumstance could push the European Central Bank (ECB) to take further unconventional measures in the form of purchases of government debt.

Finally, in terms of employment, the Bank of Spain notes that “employment has increased in 2014 to a rate close to 1%”, although it points out improvement “has focused on temporary employment.”

Original article: El Mundo

Translation by: Aura REE

Sareb Sells 10.900 Properties in Nine Months, Averaging at 40 Units a Day

28/10/2014 – Expansion

Spain’s Management Company for Assets Arising from the Banking Sector Reorganization, also known as Sareb, has transferred a volume of 10.900 REO properties from January to September 2014. As its chairwoman Belen Romana (pictured) pointed out, the performance is much better than predicted as it averaged at 40 units sold every day.

At her hearing in front of the Economy Committee, Mrs Romana confirmed the plan of Sareb of repaying €3 billion indebtness this year, 50% more than in 2013.

During the one and half year of its lifespan, the bad bank has paid back more than €3.6 billion, equal to 7% of the total issued debt. At the same time, it paid almost €1.64 billion in interests.

In the first half of the year, Sareb earned nearly €1.7 billion and its Ebitda rose to €429 million. During her speech, the chairwoman put the emphasis on the fact that this strong cash flow allowed the firm to pay €100 million in monthly fees to the transferring entities.

Contribution to Success at the Stress Test

Belen Romana also assured that Sareb has modestly contributed to the good result of the asset quality review and the stress test of all eurozone entities conducted by the European Central Bank (ECB) and the European Banking Authority (EBA). And if it hadn´t been to the bad bank, they could not remove the toxic assets from their balance sheets.

Since its creation, Sareb has been meeting its main target (i.e. ‘sell & sell more’) and therefore adding to vivid movement on the market. The bad bank is said to have atrracted attention and change the perception of the Spanish real estate among investors.

 

Original article: Expansión

Translation: AURA REE

Spanish Banks Get Good Marks at ECB’s Stress Test

28/10/2014 – Expansion

Spanish banks pass the ‘stress test’ by the European Central Bank (ECB) and the European Banking Authority (EBA), taken by the eurozone entities across the continent. The examination was failed by 25 out of 123 scrutinized banks, mostly located in Italy, Greece and Cyprus. When it comes to Spain, all fifteen entites were successful, with Liberbank showing a €32 million deficit in 2013 for which it has already intended €637 million. None of them showed need of capital.

The Bank of Spain’s Governor Luis María Linde assured the good marks were no coincidence as the State undertook meaningful measures to remove the toxic assets, cover the refinancing and obtaining the €50 billion European bail-out. Out of the supervised entities, BFA-Bankia, NCG (now Abanca), Catalunya Banc, BMN and Liberbank have received a direct support from the Government.

‘If marks were given, Spain would get the best one in the part of balance revision’, said Mr Linde. In fact, this country has shown the smallest adjustment in risky assets in Europe (0.2%).

All the entities preserve a wide margin in case of an adverse economic scenario, ranging from 5.5% to 8% and representing around €56 billion in total.

‘The banks have got a solid solvency position but no guarantee for the next 15-20 years’, warned the Governor. Fernando Restoy, vice-governor, added that the sector faces ‘not at all negligible challenges’ such as infavorable regulations and ‘flimsy’ economic circumstances which harm profitability.

Lending

In line with the cautiousness displayed above, the Bank of Spain would rather say the confidence and lending will return but not abruptly. The central entity also revealed that once the Asset Quality Review (AQR) is finished, the bank will welcome any activity leading to risk reduction.

Original article: Expansión (by M. Martínez & J. Zuloaga)

Translation: AURA REE

The ECB Gives Spanish Banks Between 6 & 9 Months to Meet Working Capital Needs

30/04/2014 – Cinco Dias

After knowing the results of the Asset Quality Review test or the endurance test basic scenario measured with the core equity intruments (Common Equity Tier 1) ensuring the capacity of loss absorption, the European Central Bank informed Spanish banks that they shall raise the amount they are still missing.

The results will be made public in October along with the endurance test outcome. The latter examination will be conducted by the ECB, the European Banking Authority and the European Systemic Risk Board with taking into consideration an adverse scenario occurance.

The ECB expects the banks to raise the missing capital unearthed during the AQR and in the basic scenario of the endurance test within six months. For finding the money for the adverse scenario they have a 9 month period.

In the capital scheme the entities can include their withheld profits, minor bonus payments, new ordinary share issues and selected asset sales which go in line with market prices.

Nearly 6.000 supervisors and auditors are working on the quality review and the endurance test. Warrant, provision and exposition revisions are to end in summer.

 

 

Original article: Cinco Días

Translation: AURA REE

Banks Shall Reassess Their Property Portfolios Before the Stress Test

20/03/2014 – Cinco Dias

Spanish banks will have to re-valuate between 1% and 20% of the high risk portfolios containing their real estate property that have been included in the ECB´s Asset Quality Revision. The Commission calls for more up-to-date appraisals, i.e. drawn after January 1st 2013.

The Spanish entities have been negotiating validity of the 2012 assessment based on the Oliver Wyman´s stress tests, however the ECB clearly stated the need of new valuations of awarded and collateral property. In fear of high cost and long readjustment period, banks tried to defend the earlier results claiming they simply needed update. (…) The arguments have been rejected.

(…) Not only have Spanish banks received the impact, but also German entites quarreled that the reassessment could unnecessarily harm the sector.

(…) According to the AQR rules, by October, from 1% to 20% of the highest risk portfolios of the entities involved in the examination will have been analyzed. (…)

 

 

Original article: Cinco Días

Translation: AURA REE

ECB Rejects Property Appraisal by Oliver Wyman & Demands a New One

14/03/2014 – El Confidencial

The Bank of Spain´s setback because the ECB that claims “the real estate owned assets´valuation based on the stress tests of Oliver Wyman – used for determination of the bail-out amount and property transfer to Sareb – in 2012 were not reliable. In the AQR examination and the afterward stress tests a necessity of reassession of guarantees (…) and this, together with collective provision are the most fearful aspects for the new fiscal year for Spanish banks.

(…) In 2012, 1.7 million property appraisals have been prepared (concerning both awarded and collateral assets) by six valuators and now their work turned out to be an old hat.

This is not the first time the European authorities dispute appraisals drawn for Spanish banking aid. Thus, the Commission has objected to prices of assets transferred to Sareb – based on the Wyman´s tests – claiming that they were above the real prices on the market (for instance, it insisted that real discount for flats shall be of 75%). As a result, (…) the amount rises from €61.000 million intended for Spain to €100.000 million.

Now, the auditing companies named to conduct the revision (“the Big Four”, Deloitte excluded) cannot valuate the real estate guarantees so they are awaiting a decision who will take the appraisal over. (…).

The real estate setback joins another threat cast upon Spanish financial sector in the forthcoming years: the so-called “collective provisions”. It derives from the fact that at the Asset Quality Revision the banks´corporative credits will be taken as a whole, while the detail ones (mortgages, consumer loans) picked randomly and the results will have an impact on entire portfolio. (…). The provisions will be an input for the stress test calculations.

But the most important role the provisions play is to determine if the expected losses turn out ot be higher and so the needs of a bank to face them (…).

Finally, not all portfolios under revision will be of the same type for each entity but different and specified by the Bank of Spain. In any case, the minimum tax for Frankfurt for the test is 50% of the weighted assets. Also, one shall not forget about the penalization of public debt portfolios. On Monday, the ECB will meet the auditing companies to explain them the revision methodology.

 

Original article: El Confidencial (Eduardo Segovia)

Translation: AURA REE