Large Funds Get Involved in Popular’s Criminal Lawsuit

31 January 2018 – Expansión

The large funds Pimco, Anchorage, Algebris and Cairn are participating in the criminal case that the Spanish High Court is investigating against the former directors of Popular.

These funds, which lost almost €850 million following the resolution of the bank, have appealed the resolution decision taken by the Single Resolution Board (JUR) before the European Court of Justice and the resolution of the Frob before the Spanish High Court. Specifically, Anchorage, Algebris and Ronit have appealed to the European Court of Justice and Pimco, Anchorage, Algebris, Ronit and Cairn have appealed to the Spanish High Court.

On 4 October 2017, judge Fernando Andreu admitted for processing the first lawsuits against the former directors of Popular and PwC. Most of them are focused on the capital increase made in 2016 and against Ángel Ron and his Board for improper management, falsification of documents and misappropriation. Lawsuits have also been filed against Emilio Saracho and the management of the most recent executive team.

The debtholders are being represented in Spain by Andersen Tax & Legal and SLJ Abogados and in the EU by Quinn Emanuel.

Richard East, Managing Partner at Quinn Emanuel, explains: “The plaintiffs filed serious accusations that the Spanish High Court has agreed to investigate. The funds want to be informed and to collaborate in this investigation to determine the existence of falsehoods in the process”.

Original story: Expansión (by Mercedes Serraller)

Translation: Carmel Drake

KKR Finalises Its Purchase Of Hipoges & The Pepper Group

24 October 2017 – Voz Pópuli

The investment giant KKR is multiplying its commitment to Spain. The US fund is on the verge of signing two operations, which will see it obtain real influence in the property and financial sectors. Moreover, it is participating in other major processes to purchase portfolios of banking assets, such as Project Invictus, although Bain Capital is expected to be victorious in that case.

The next operation to be signed in the market is the deal involving Hipoges. And according to financial sources consulted by Vozpópuli, KKR has imposed itself in the sales process of that recovery and real estate asset management platform, which was founded in 2008 by former directors of Lehman Brothers.

KKR’s offer has convinced the vendors – comprising the main directors and the fund Cerberus, which holds a 40% stake – ahead of the bid submitted by the British group Cabot. Sources in the market estimate that the price will amount to €25 million – €30 million in the end.

With the purchase of Hipoges, KKR will be able to compete on equal terms to acquire large portfolios of problem assets from the banks. In this regard, four large funds dominate the market: Blackstone, owner of the platform Anticipa and now Aliseda; Apollo, which controls Altamira; Cerberus, a shareholder of Haya Real Estate; and Lone Star, the main investor in Neinor. KKR is led in Spain by Jesús Olmos and Alejo Vidal-Quadras (pictured above).

Other funds in this league include TPG, which owns 51% of Servihabitat, although it has maintained a rather low profile in recent months; and Oaktree, which manages its assets through Sabal Financial.

What is Hipoges?

Hipoges is one of the main independent servicers, alongside Finsolutia, TDX Indigo and Copernicus. It has 200 employees across four countries and it manages loans and properties worth €8,000 million.

On the other hand, KKR is currently finalising the takeover of the Australian firm, the Pepper Group. That consumer financing institution has a lot of activity in Spain, through 300 employees, and has just made the leap into traditional banking with the acquisition of a small Portuguese entity, which also has a branch in Madrid: Banco Primus. As such, Pepper will soon start to grant mortgages in Spain.

Pepper was one of Banco Popular’s partners, in one of the last alliances to be signed by Ángel Ron; however, it only lasted for a few months until Emilio Saracho broke off the agreement.

The group will be an investee company and so the executives of KKR are not expected to get involved in the management of the company beyond sitting on the Board of Directors of the holding company in Australia. Even so, Vidal-Quadras has participated in the operation to value the business in Spain, and so his opinion will be taken into account when determining the financial entity’s strategy.

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

Santander Owns 40% Of Spain’s Toxic Assets After Popular Purchase

12 June 2017 – El Confidencial

Banco Santander’s purchase of Banco Popular has created a new real estate headache for the entity chaired by Ana Patricia Botín (pictured above). As a result of the operation, which was closed for the symbolic price of €1, the Cantabrian entity has taken on a significant “inheritance” in the form of toxic assets linked to property. Specifically, we are talking about assets worth almost €17,000 million – €10,300 million net – according to data submitted by Banco Popular to Spain’s National Securities and Exchange Commission (CNMV) at the end of 2016.

If we add that figure to the €10,700 million that Santander already held on its balance sheet, according to figures at the end of last year, then the entity’s total real estate exposure following this corporate operation amounts to €27,700 million. That volume represents almost 40% of the entire toxic asset exposure that the large listed banks recognise on their balance sheets, which, at the end of 2016, amounted to €70,000 million in total (…).

Despite the clean up of foreclosed assets undertaken in recent years – carried out through the direct sale of properties and portfolios and the signing of operations such as the transfer of homes to Testa – the financial institutions still have a significant volume of property on their balance sheets. And Popular had the largest exposure of any of the listed entities. In net terms, it held €10,305 million; a figure well above those recorded by CaixaBank (€6,876 million); Sabadell (€6,244.7 million); BBVA (€6,012 million); Santander (€4,787.2 million); Bankia (€2,251.2 million) and Bankinter (€260.2 million).

Moreover, in land alone, the gross value of its assets amounts to almost €8,000 million, half of its total exposure to real estate and, once again, the highest figure of any of the listed banks.

Nevertheless, the precise gross value of those real estate assets has been one of the aspects that has generated most uncertainty in the market and one of the main obstacles it faced when it came to closing a corporate operation, which Santander agreed to in the end. An increase in the provisions against Popular’s real estate portfolio after the reappraisal process would increase the coverage ratio of these assets, which currently stands at 38.5%, however, it would also reduce their net book value, which amounted to €10,900 million as at 31 March.

Property continues to be a major problem for the financial institutions despite the clean-up undertaken in recent years. In fact, despite all of the real estate clean-up efforts, the G-7 banks reduced their global volume of foreclosed assets by just 2.3% in 2016; and by 0.73% in the case of land. (…).

The purchase of Banco Popular leaves the (recently announced) sale of a real estate portfolio amounting to €2,000 million up in the air – at least for the time bing – Emilio Saracho was preparing the portfolio together with KPMG, with the aim of reducing the high volume of non-performing assets (…) on its balance sheet in an accelerated way. (…).

Original story: El Confidencial (by E. Sanz)

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

Moody’s: Popular Cannot Afford To Wait To Clean Up Its BS

29 May 2017 – Expansión

The credit rating agency Moody’s considers that Banco Popular does not have time to wait for the recovery in the real estate sector in Spain to have a positive impact on the quality of the real estate assets in its portfolio.

In fact, the rating agency considers that Popular’s solvency problems mean that it must reduce the non-performing assets that are weighing down on its balance sheet in an “accelerated” way, without allowing the entity to fully benefit from the reactivation of the real estate market.

“The recovery in the real estate market is a positive factor for the banks that are most exposed to the real estate sector”, said María Viñuela, Deputy Vice-President and analyst at Moody’s.

Nevertheless, Viñuela understands that the recovery in the housing market will materialise “over time”, which is why she reiterates that Popular is “under pressure” to improve its solvency and accelerate the reduction of its non-performing assets within a “shorter” time frame.

The entity chaired by Emilio Saracho (pictured above), whose rating Moody’s downgraded to B1 in April, has non-performing assets amounting to €37,000 million – 25% of the total – on its balance sheet, most of which are related to the real estate sector, which is one of the major factors that impinges on its value in a possible corporate operation.

The bank, which is currently analysing all of the strategic options open to it, still has more than two weeks to decide whether to go ahead with the sales process in which it has been immersed since 16 May, given that a deadline of 10 June has been set for taking a decision.

For the time being, Popular has not received any specific firm offers, nor has it assumed any commitments, which means that it has not completely ruled out a capital increase, as Saracho stated during the most recent General Shareholders’ Meeting.

Amongst Popular’s strengths that may attract its buyers include its franchise and its SME business, where the entity is the leader of the sector, with a market share of almost 18%.

Original story: Expansión

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

Popular Abandons Sunrise To Pursue Other RE Solutions

29 March 2017 – Cinco Días

Speculation about the future of Banco Popular has not dissipated following Emilio Saracho’s arrival as the entity’s new President on 20 February, although it is true that it has tempered slightly. The bank’s low solvency ratios, after it completed a major cleanup effort in 2016, are fueling those rumours and it seems that until the entity shows the market that it is capable of resurrecting itself like Ave Fénix, through some kind of major sales operation, then the market will not stop seeing it as an easy target.

Popular’s level of regulatory capital stood at 8.17% in December, below the 10.5% required by the ECB in January 2019 and also below the average for the sector. Most of its capital consumption is due to its high-risk level, itself a consequence of its large property portfolio, the main problem in all of this. However, a substantial number of the solutions designed by the former President, Ángel Ron, have now disappeared or have been modified. (…)

One project that has been buried almost completely, although it has barely been acknowledged that it is not going to be carried out, is Sunrise. That was Ron’s star project, to eliminate a large part of the entity’s real estate portfolio.

The idea was to transfer around €6,000 million in real estate assets to this vehicle, which was going to be deconsolidated from Banco Popular’s balance sheet, after securing a complex financing structure, and its subsequent debut on the stock market.

It seems that Saracho has not approved of that project since he arrived at the bank and has decided to shut it away in a drawer, never opened. Now questions are being asked about what will happen to Remigio Iglesias and Roberto Rey, two executives hired by Popular last year to serve as the President and CEO of Sunrise, respectively.

Another option still open to Popular is to turn to the European bad bank, which the ECB is expected to create, according to market sources. In fact, Popular’s share price was the most bullish on Tuesday, with an increase of 3.24%, after the European Banking Authority said that it was in favour of creating a European bad bank to solve the problematic loan phenomenon, a project that is also supported by the ECB.

Original story: Cinco Días (by Ángeles Gonzalo Alconada)

Translation: Carmel Drake

Spain’s Listed Banks Recorded Proceeds Of €10,700M From House Sales In 2016

9 February 2017 – Expansión

Last year, Spain’s listed banks recorded revenues amounting to €10,700 million from the sale of properties. Sabadell was the most active entity, generating €2,691 million from such operations, representing an annual increase of 50%.

Santander sold assets for €2,066 million, in line with the revenues it recorded from this activity in 2015 (€2,070 million), whilst Popular’s turnover from these sales amounted to €2,024 million.

Below the €2,000 million mark, BBVA sold properties for €1,971 million and CaixaBank for €1,337 million. Bankia and Bankinter, which were less active, recorded revenues of €481 million and €135 million, respectively, from property sales.


Overall, these entities recorded combined losses in their real estate businesses of €6,132 million last year, up by 54% compared to the previous year, when their combined losses amounted to €3,973 million. These figures do not include Bankia, which does not disclose the break down of the results of its real estate activity in its income statement.

Popular recorded the greatest losses (€3,178 million), whereby tripling its losses from 2015. The second largest loss maker was CaixaBank (€1,125 million), although it followed a downwards trend, down by 6% YoY. Sabadell closed the year with losses of €908 million, up by 7.6% compared to the previous year, whilst BBVA recorded 20% higher losses, at €595 million. Santander reduced its real estate losses by 22%, to €326 million.

The clean up carried out by Popular during the final quarter of last year, which generated losses of €2,456 million, combined with those recorded during the first nine months of the year (€721 million) meant that the entity accounted for more than half of the losses recorded by all of the listed banks in their real estate activity. Popular has set in motion plans to create a bad bank, into which it will dump its damaged assets, although the next chapter of the future of that project will not be written until 20 February, when Emilio Saracho takes over as Chairman of the entity.

At the end of December 2016, Popular had recorded real estate provisions amounting to €13,442 million, spread in equal amounts between loans and properties. CaixaBank’s portfolio of foreclosed assets amounted to €6,256 million, following a reduction of €1,003 million. That entity recognised provisions amounting to €656 million last year. BBVA’s losses in its real estate activity include €136 million relating to the reallocation of provisions. Its real estate exposure amounted to €10,307 million, down by 16.8% compared to a year ago.

Original story: Expansión (by Elisa del Pozo)

Translation: Carmel Drake