Popular Stakes Its Future On The Segregation Of Its RE Arm

4 November 2016 – Expansión

Banco Popular is in the eye of the storm. The bank’s senior officials are facing the future by effectively placing a firewall between the entity’s normal banking activity and its real estate risk, however, the markets do not seem to be able to trust that they will succeed in finding their way out of the tunnel the entity entered when the real estate bubble was about to burst.

Following two major capital increases, amounting to €2,500 million each, and a third, smaller, capital injection of €450 million, as a result of which a Mexican investment group, led by the Del Valle family, became a shareholder of the group, the value of the bank (based on its share price) currently amounts to less than €4,000 million, making it the domestic financial entity that has seen its market capitalisation decreased by the most this year.

Popular has two lives: one afforded by its traditional business, which focuses on rendering financial services to individuals, self-employed people and SMEs, and where its efficiency and profitability ratios are high; and the other one, linked to the real estate sector, where the cumulative losses due to the impairment of its assets represent a real threat to the rest of its activity. (…).

Although the bank has received several offers to join a larger and more powerful financial group, the Board of Directors and the main shareholders who serve on the Board have categorically rejected them all, preferring instead to continue to lead the entity along its own path. “We do not want Popular’s intrinsic value to benefit others”, the entity has said time and time again, in order to justify its negativity towards a corporate operation in which it would fail to take over the reins. (…).

The two capital increases (the first one was carried out in December 2012 and the second one at the start of the summer) were accompanied by the appointment of Francisco Gómez (a man who has worked at the bank for his entire life) as the CEO (in the case of the first) and by his replacement by Pedro Larena, previously from Deutsche Bank and Banesto (in the case of the second). The aim was the same in both cases: to try to convince the market each time that the change in management was going to effectively deal with the recurrent problems, in other words, to eliminate the real estate risk.

Popular has tried to resolve its problems in the traditional way…by selling off its damaged assets at significant discounts, offset by growing provisions…but this has not proved sufficient, not least because the entry of damaged assets onto the balance sheet has been higher than the volume it has managed to sell through individual sales. (…).

Now, Popular is pursuing a strategy to segregate a substantial part of the real estate risk that it holds on its balance sheet (€6,000 million in book value), by placing it into a company that it will also endow with sufficient capital (around 20% of its liabilities). This capital will distributed free of charge amongst Popular’s existing shareholders in a way that will completely dissociate the entity from the transfer/sale. (…).

However, even once Popular has managed to eliminate a significant part of its real estate risk, the bank’s problems will not be over. That is reflected in the ERE that it is currently negotiating with the trade unions (which should be finalised by Sunday 6 November at the latest), which proposes the closure of 300 branches and a reduction in personnel of around 1,600 people through early retirement and voluntary redundancy packages. (…).

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Fortress Finalises Its Withdrawal From Spain

17 November 2015 – Expansión

Strategy / The US fund will close the sale of Paratus to Elliott and Cabot Financial this week. It will also complete the ERE affecting more than 50% of Lico Leasing’s workforce.

The opportunistic fund Fortress is continuing its withdrawal from the Spanish financial sector. The US investor is finalising the sale of one of its financial businesses in the country, namely, Paratus, a platform that specialises in the management of problematic banking assets, which Fortress has controlled since 2009.

According to several financial sources, the sale of Paratus will be signed this week with the fund Elliott Advisors and the British group Cabot Credit Management Group, owned by JC Flowers and Encore Capital, taking ownership.

Each of the investors will take over a different part of Paratus’ business. Elliott is most interested in the real estate division and in the team. At the beginning of the sales process – known as Project Coast and advised by N+1 – Paratus held loans amounting to €152 million, secured by 866 properties; 500 homes worth just over €100 million; and a team comprising 43 professionals.

Meanwhile, Cabot is interested in acquiring the unsecured loans, which Fortress is selling for €426 million. The British group is looking to build upon its recent entry into the Spanish market, following its purchase of the Gesif platform from Elliott.

In addition to this possible sale, Fortress is also reducing its exposure to the Spanish financial sector by conducting an ERE at Lico Leasing. At the end of 2014, this subsidiary of Fortress had 130 employees. Through the restructuring, the fund has got rid of the commercial divisions of Lico Leasing, its other major financial business in Spain, which it acquired from the savings banks just one year ago; this means that it will no longer capture any new loans.

Complex operation

Fortress will continue to manage Lico Leasing’s existing portfolio and will continue to operate Geslico, its subsidiary that specialises in problem loans. That company recently integrated two of Fortress’s other companies in Spain: Auxiliar de Servicios y Cobros and Gestión de Activos de Aragón.

Fortress’s commitment to Lico Leasing was cut short due to the time required for its approval – almost two years – and by the re-opening of the credit tap by banks following the measures introduced by the ECB.

The US fund will continue with its other activities in Spain, by providing financing to companies and the real estate market.

Original story: Expansión

Translation: Carmel Drake

Holiday Inn Bernabéu Files For Bankruptcy

20 April 2015 – Expansión

Madrid / The hotel, which continues to be operational, filed for voluntary bankruptcy at the beginning of this year in order to renegotiate its debt.

Leading Hospitality, the company controlled by the businessman César Losada, which owns the Holiday Inn Madrid Bernabéu hotel and the Hotel Maza in Zaragoza, has filed for bankruptcy to try to restructure its debt and forge ahead (with its business). On 13 January, Leading Hospitality voluntarily adopted this legal status and almost a month later, Commercial Court no. 9 in Madrid declared the procedure open, according to the company’s annual report for the financial year 2014.

Gregorio de la Morena, managing partner at DLM Insolvia, has been appointed as the bankruptcy administrator, although Losada and his team continue to manage the hotel, which is still operational. Sources close to Losada explain that the company filed for bankruptcy because “it had cash flow problems, which prevented it from meeting its short-term debt commitments”. Nevertheless, the intention is that the company will avoid filing for liquidation and instead reach an agreement with its creditors and continue operating.

For the time being, the company is waiting for the bankruptcy administrator to prepare the list of creditors to start negotiations. In addition, Leading Hospitality expects to file a collective dismissal plan (‘expediente de regulación de empleo’ or ERE) to reduce its wage bill – the scope of (that agreement) is being negotiated with the bankruptcy administrators. The hotel employs around 150 people.

In 2013, Leading Hospitality recorded revenues of €7.33 million, but it generated a negative operating profit of -€2.32 million. Net losses reached -€1.92 million and last year, the company also ended the year in the red.

Debt

At the end of 2013, the company had long-term debt amounting to €7.62 million and short-term debt amounting to €1.55 million, as well as several mortgage loans on both of its hotels – with Bankinter over its property in Madrid. Staff salaries and compensation payments amounted to €4.17 million in 2013.

In the accounts for that year, approved in December 2014, the auditor warned that the company was experiencing on-going cash flow problems (to be able to afford to pay) its employees, suppliers and financial partners. And it pointed to the management team’s plan to continue the refurbishment of the hotel, which it says is worth €27 million, and reduce the number of staff.

At the end of 2012, the businessman César Losada became the majority shareholder in the Madrid hotel, after acquiring a 51% stake from the InterContinental Hotel Group (IHG). Losada, who is behind the hotel investment company Losan Hotels World, invested €22 million in the acquisition and refurbishment of the four star hotel, which has 313 rooms. The asset is also owned by other individual shareholders and Losada intends to acquire their respective stakes (over time). Following the change of ownership in 2012, the hotel retained the Holiday Inn brand, which is owned by IHG, though a 25 year franchise contract. In 2013, Leading Hospitality paid a €363,754 fee to IHG.

Original story: Expansión (by Yovanna Blanco)

Translation: Carmel Drake

Fortress Is Preparing For Another ERE At Geslico

12 February 2015 – El Confidencial

Fortress, the alternative investment fund that bought the savings banks’ financing business, has announced to its employees that is it going to undertake a statutory redundancy procedure (un expediente de regulación de empleo or ERE) at Geslico, the subsidiary dedicated to loan recovery. Although the US entity has not quantified how many people will be affected by the drastic measure, sources close to the firm say that almost 40% of the workforce could be made redundant.

Geslico, the group formed by three subsidiaries with headquarters in Madrid, Valencia and Zaragoza, currently employs 450 people, of which around 200 could be made redundant as a result of the ERE. Although Fortress has not yet explained the real reasons for adopting this measure, sources close to the company explain the that job cuts are due to the loss of business resulting from the mergers of savings banks.

The announcement was made at Paratus, the business centre created by Fortress in Barcelona to manage all of the acquisitions the fund has made in Spain since it started to buy non-performing loans from financial institutions such as Banco Santander and debt from the real estate company Realia. Subsequently, between 2012 and 2013, Fortress acquired Lico Leasing, the holding company that provides financing to companies in the Spanish Confederation of Savings Banks (Confederación Española de Cajas de Ahorros or CECA), and Geslico, which it bought for almost €220 million.

Nevertheless, the name Fortress gained notoriety in Spain when the fund tried to sell 300 homes it had bought from Sareb, at a much higher price than the State’s bad bank had agreed to transfer them to a group of individuals.

These types of funds, known as opportunistic or vulture funds, have become the new owners of mountains of unpaid debt – estimated to amount to €50,000 million – which originated from the balance sheets of Spanish banks and was transferred for a price significantly below its face value. Subsequently, these funds manage the debts by trying to negotiate long-term payment plans with the borrowers to recover the initial amounts loaned.

The ERE at Geslico is not the first to be proposed by Fortress, which already significantly reduced Geslico’s workforce, at the end of 2013. At that time, Paratus informed its employees that 174 of the 470 strong workforce were going to be made redundant, with their contracts terminated. Another 40 were told that their employment contracts would be suspended temporarily (una suspensión temporal de empleo or ERTE), which was to result in 210 employees losing their jobs on a permanent or temporary basis. In the end, following internal negotiations, the list of redundancies was reduced to 120 people.

Prior to this, in 2012, the shareholders of Lico Corporation, which included BBVA, Banco Sabadell, Mapfre, Ibercaja, Unicaja, CECA, Novagalicia, CatalunyaCaixa and Bankia, amongst others, had already announced a redundancy procedure, which affected 95 of the 230 employees at the financing company.

In the most recent annual report filed by Fortress, the fund claimed that it had “confidence in the robust future of Geslico’s activity, due to its broad range of clients and the trend towards outsourcing debt recovery work”. Nevertheless, it warned in its forecast for 2014 that “annual recoveries may decline slightly with respect to 2013, as a result of the restructuring of the banking sector and the reduction in lending in recent years”. The reality has proven to be worse than expected and Geslico’s employees are paying the price.

Original story: El Confidencial (by Agustín Marco)

Translation: Carmel Drake