Tag: European Central Bank

Merlin’s Share Price Stays Below €10 Amidst Divestment Rumours

22 April 2016 – El Boletín

The downwards trend in the share price of Merlin Properties is accelerating amidst rumours of divestments. The Socimi’s share price decreased by 2% on the stock exchange after it was revealed that it is considering the sale of some of its premises, currently leased to BBVA, its main tenant.

The slight decrease in the share price in recent months has accelerated following the news that Merlin is considering the sale of a “residual part” of the premises that BBVA leases from it as branches. Currently, there are 888 buildings in this situation, which meant that when it debuted on the stock exchange – exactly four months ago today – it was known as the landlord of the bank chaired by Francisco González.

Whilst this movement would form part of the asset rotation policy set out in the listed entity’s strategic plan, investors are reacting negatively to this change in Merlin’s criteria with respect to one of its main tenants. Thus, share sales increased during the trading session and the Ibex 35 fell prey to the uncertainty surrounding the wait for Mario Draghi to share his account of the European Central Bank (ECB)’s next moves.

Analysts at Capital Bolsa also indicated that the technical analysis of its graph points more towards a decline to €9.50 per share, than a comeback to the €10.00 threshold. Until the Ibex’s Socimi manages to exceed its recent maximums of €10.079 per share, the trend to increase its losses will continue, which now amount to 15% in terms of its market capitalisation since the beginning of this year.

Original story: El Boletín

Translation: Carmel Drake

Pimco Urges ECB To Buy Spanish Securitisation Products

14 October 2015 – Expansión

The US investment management company is proposing the creation of a new supra-national entity to acquire securitisation products.

Anniversaries are often a good time to take stock and a year has now passed since the European Central Bank (ECB) announced the launch of its plan to buy securitisation products in the market. The effective acquisitions began in November and so far amount to €13,105 million. Has the effort made by the ECB to support this program been worth it? According to Pimco, the global fixed income giant, the answer is a resounding no.

And not only because the amount acquired so far represents only a tenth of the bond purchase program to date and less than 4% of the public assets, or because the acquisitions have centred on those countries that need the least help in their securitisations markets (Central Europe). All of those factors counts towards to the overall assessment, but Pimco thinks that there is much more to it.

For starters, the US investment management company considers that it is neither the appetite of investors, nor the price that is strangling the issuance of securitisations. The banks have limited liquidity needs at the moment and they can obtain the financing they do need through other simpler instruments, such as bonds or by appealing to the ECB. It is the regulation and the impossibility of freeing up capital with the sale of securitisation products to investors that is causing this issuer drought in Europe. “The banks that need relief for capital requirements are not receiving it under the current regulatory and economic framework for securitisation products”, explains Pimco, in a report published by the company that specialises in this field.

To that it adds the design of the ECB’s plan itself. There is general criticism that the supervisor is being excessively cautious with its purchases: the slowness with which it is analysing each possible purchase and the fear it is showing when it comes to buying assets that may generate problems, have been the commonplace. And the US management company is joining the ever-growing list of critics of the program. They say that purchases are being concentrated in the wrong countries, as well as in the wrong sectors and tranches of the securitisation products, because that is not where the banks need help. Pimco believes that the ECB should focus on buying the most risky tranches of debt issues, because that would help lower prices and free up capital for the banks.

Moreover, the ECB should not only buy the tranches with the highest risk, it should also do so in those countries in which, until now, it has barely made a mark. Pimco points to the periphery of Europe, “where the prices of loans are still high and access to credit is scare”. And by way of example, it cites Spain, the rate of growth in terms of loans is low and the margins being charged on those loans are high. (…)

If power needs to be granted to the European Investment Fund to do make these purchases or a new supra-national entity needs to be created to assume the first losses from the securitisation products acquired, then Pimco insists that that is exactly the action that should be taken.

And all of this would be for the greater good. “If carried out correctly, we think that the European securitisations market could help to cure the continent’s economy, stimulating credit and access to it, especially in the peripheral regions”, concludes the investment management company.

Original story: Expansión (by Inés Abril)

Translation: Carmel Drake

Botín Re-Opens The Mortgage Resale Market 8 Years On

10 June 2015 – Cinco Días

The packaging and resale of high-risk, or subprime, mortgages between large financial institutions in the United States was the epicentre of the international crisis that began to unravel in 2007 and which revealed its devastating force one year later, with the bankruptcy of Lehman Brothers.

When that bubble burst, it swept away much of the market for mortgage securitisations, amongst other things. In the case of Spain, which had become the second largest market in Europe and one of the most important on the global stage, the market vanished. But now, it is making a come back.

Unión de Créditos Inmobiliarios (UCI), the financing arm of Banco Santander that specialises in loans for home purchases, has just signed the first operation of this kind to be closed with investors since 2007.

Specifically, at the end of May, UCI placed a €450 million package of mortgages, backed by residential homes. The portfolio, which has been assigned a Aa2 rating by Moody’s, is considered to be a high quality product, since it comprises loans that, on average, cover 53.8% of the values of the homes (loan to value), compared with the limit of 80%, recommended as good practice in the sector.

It is understood, therefore, that the clients that took out these mortgages had (access to) significant resources beyond the financing they requested and that the real estate guarantee behind the loans (homes acquired across the whole of Spain between 2006 and 2013, of which 79% are located in Andalucía, Madrid and Cataluña) would more than cover any possible non-payment.

The sale received a great deal of interest from banks and investment funds, primarily those based in Germany, The Netherlands, France, the UK and Spain, with demand for the package exceeding its value by 1.7x, according to sources close to the operation.

The placement coupon was Euribor plus 0.85 points, compared with the differential of 25 or 30 basis points that was paid in Spain eight years ago. That lower differential is being paid now in the UK and The Netherlands, where the market has never completely closed, but where the differential increased to 150 basis points after the outbreak of the crisis.

Sources at UCI, which placed securitisations amounting to €12,000 million between 1994 and 2007, understand that “since this is the first transaction, a premium must be paid in order to return to the market”, but that it is still an “attractive level”.

The same sources say that the step has been taken as the result of three factors. “Until 2014, there were no transactions involving the public issuance of securitisation bonds in countries on the periphery of Europe. Nevertheless, following an RMBS (residential mortgage-based securitisation) bond issue in Italy, we saw an opportunity for us to issue debt”. They add that the debt purchase program launched by the European Central Bank has, in turn, led to the “revitalisation of the securitisation market”. “Despite that, after eight years of paralysis, bond issues have not been possible until now, since we needed to reach a post-crisis economic situation”.

UCI expects to undertake similar issues in the future and hopes that its example will encourage other entities to do the same.

Original story: Cinco Días (by Juande Portillo)

Translation: Carmel Drake

Foreign Investment ‘Pulls Up’ House Prices In 8 CCAA

15 April 2015 – El Economista

The housing phoenix is rising from the ashes, but, as yet, it is not soaring with equal force across the whole country. After 2014, which was year zero for the sector after seven years of hard-hitting decreases, the foundations are being laid in 2015 for a new cycle. Whilst in the large cities, such as Madrid and Barcelona, (the recovery) has taken off, fuelled by foreign investment, tit is still weak and flighty in areas with lower demand; nevertheless it is still a recovery.

The revival of the mortgage market, accompanied by an environment of low interest rates, a good overall economic climate and the outlook for growth both in terms of consumption and production, has generated the ideal breeding ground for the real estate sector to return to our economy, although in terms of size it is still well below its pre-crisis levels.

According to data from the National Construction Conference (Conferencia Nacional de la Construcción or CNC), in 2007, construction accounted for around 22% of GDP. Today, it represents approximately 5%. Leaving the excesses of the real estate boom aside, the prudent return of construction activity is important to enable proportional feedback between the Spanish economy and housing.

Where is real estate taking off?

After the hangover of the crisis, the housing sector is starting to record its first price increases. According to Sociedad de Tasación (ST), the average price of new and used homes increased by 3.3% during the first quarter of 2015 to record nine consecutive months of increases. With the latest rise, the (average) price per square metre amounts to €1,316, according to the Trends in the Real Estate Sector report. Nevertheless, the evolution is very uneven across Spain.

The value of properties in eight autonomous communities has increased. Navarra, led the ranking with an increase of 6.7%, followed by the Balearic Islands (6.5%), Valencia (5.7%), the Canary Islands (5.4%), Madrid (3.8%), La Rioja (3%), Andalucía (2.8%) and Extremadura (0.3%).

Fluctuations are still expected

Nevertheless, as Juan Fernández-Aceytuno, CEO of ST, notes, this data should be interpreted with caution, given that it comes in the context of a decrease of around 45% in the price of homes; as such the downward trend has less distance to travel. Moreover, if we focus only on the price of new homes, then the decrease has not bottomed out yet.

All of this, he explains, draws a picture that is characterised by “stabilisation, but with a serrated edge”. In recent months, positive and negative data has been recorded and the distribution of the recovery is uneven. Therefore, although the majority of the experts agree that house prices have bottomed out, it is too early to talk about a full recovery. For that, the CEO of ST says, the figures for the number of transaction and mortgages granted will need to return to the levels last seen in 2001 and 2002. And he adds that those two variables are the ones that are really going to shape the evolution of the real estate sector. “A market the size of Spain should be granting around 750,000 mortgages and closing 800,000 house sales per year”, he says.

Who is buying?

Despite the opening up of the credit market and the improvement in conditions, the level of financing continues to be low and does not stop flowing between families; this brings us back to a position of prudence, says Fernández-Aceytuno. “The stored-up demand will have to be released at some point”, but decisions to buy are still being postponed. Price decreases and greater employment stability may provide a boost for all of those latent buyers.

So, who is behind the increase in the number of house sales? José Luis Ruiz Bartolomé, expert in the real estate sector and author of the book ‘Return, property, return’ (‘Vuelve, ladrillo, vuelve’) explains. After the necessary price decreases, there has been a strong inflow of foreign investment, both by funds as well as individuals, especially in the coastal regions. Moreover, as this expert indicates, more homes are being sold, but “location is becoming very important”.

The outlook, therefore, is that the evolution (of prices) will be very different in some areas than in others. This is confirmed by the report about the residential market in Spain issued by Maxxima REA, which states that 2014 was the turning point for real estate investment in Spain. According to the study by that real estate consultancy firm, transactions to date have been concentrated in Madrid and Barcelona, and have focused on prime assets, whose supply is scarce. As a result, the prices of higher quality assets in better locations have increased.

More properties are being bought and sold

What is undeniable is that the evolution of prices is supporting the revival of house sales. According to the latest statistics from the National Institute of Statistics (INE), house sales increased by 15.5% in February with respect to the same month last year, to reach a total of 29,714, whereby recording six consecutive months of increases.

Another positive statistic, but again, one that needs to put in perspective, since it is still a comparison against minimum real estate activity. In terms of the geographical distribution of house sales, the map is uneven. Whilst sales are soaring in Aragón (49.2%), followed by Madrid (28.4%), Barcelona (23.2%) and the Balearic Islands (21.7%), other regions are suffering from a decrease in the number of house sales, including (-22.7%) and the Canary Islands (-5.5%).

The return of the cranes

(…) Refer to article dated 30 March 2015 for these details.

The risks

In this overall market context, the obvious question is “Is this recovery stable”? All of the experts agree that it is. The change in the cycle is here to stay, but they also call for caution because money is “very easily frightened”, according to Ruiz Bartolomé, who warns against two risks: political instability, with the rise of parties such as Podemos, “which scare off overseas investors” and the danger that Spain becomes complacent and puts the brakes on its structural reforms.

At the Sociedad de Tasación, they are more optimistic in this sense and they believe that the risks of destabilisation are remote. “Not even the electoral calendars will have a direct impact on the market”, explains its CEO. However, any sharp rises in interest rates would impact the recovery, however such a move is highly unlikely, especially given the latest monetary policy measures undertaken by the European Central Bank.

Original story: El Economista (by Silvia Zancajo)

Translation: Carmel Drake

INE: Mortgages Increased By 1.6% In 2014

27 February 2015 – Expansión

The number of mortgages granted for homes increased by 1.6% in 2014 with respect to the previous year, to 202,954, which meant that the mortgage market returned to positive growth after seven consecutive years of decreases; and so a change in the sector’s cycle begins.

The signing of new mortgages for the purchase of homes rose by 1.6% in 2014 to reach 202,954, the first increase after seven years of decline, according to extracts from the Mortgage Statistics published by INE today.

The number of new mortgages had not increased on a year-on-year basis since 2007, a year in which more than a million more mortgage contracts than last year were signed – 1,238,890, to be exact – therefore, despite the recovery that appears to taking place in the sector, the market is still well below its pre-crisis figures.

The signing of mortgages has fallen steadily since 2007: in 2013, the number decreased by 27.1%, whilst in 2012, 2011 and 2008, they fell by more than 32%. In 2009, they dropped by 22.2% and in 2010 and 2007, the declines were more moderate, with decreases of 6.6% and 7.7%, respectively.

Last year the size of the average mortgage taken out over homes also grew, by 2.1% to €102,130, whilst the total amount of capital loaned rose by 3.8% during the course of the year to reach €20,727 million.

In December 2014 alone, the number of new mortgages recorded in the property register grew by 28.9%, compared with the same month in 2013, whereby completing seven consecutive months of increases. During the last month of the year, 15,962 contracts were signed in total, for an average value of €124,059, also higher than a year earlier.

Overall, in 2014, the total number of mortgaged properties increased by 11.7%, to amount to 314,018. Of those, 22,342 were urban (+12.5%) and 1,054 were rural (-3.2%).

For Fernando Encinar, Head of Research at Idealista, “this increase in the number of mortgages granted represents good news for the sector. Banks have started to hang the “mortgage” sign in their branches once again and demand is beginning to respond, encouraged by the economic recovery and the suppression of prices”.

Manuel Gandarias, Director of the Research Unit at pisos.com offered a similar view: “Everything seems to indicate that the mortgage market will reactivate briskly. Following the significant decreases observed since 2007, the data in 2014 represents the first annual increase in the granting of loans, and the second half of the year really stood out in terms of growth”.

“Similarly, the average size of mortgages has experienced an increase, which is indicative that the banks have recovered the financing role that the sector was has been asking for”, he continued.

“Competitiveness between entities to win the best clients has returned to the mortgage sphere and offers will continue to attract sales and purchases. Everyone will have to pay attention to the evolution of Euribor and the movements of the European Central Bank (ECB), whose measures have accelerated this opportunity. Although the future looks brighter, we should remember that this is the principle of stabilisation. Financing is a fundamental element for families and it is a clear indicator of the process of improvement.

Andalucía, Madrid and Cataluña lead the increases

As usual, the autonomous regions with the highest volumes of mortgages granted in 2014 were Andalucía (36,860), Madrid (35,461) and Cataluña (30,261).

The regions in which the most capital was lent to constitute mortgages were Madrid (€5,134.9 million), Cataluña (€3,439.1 million) and Andalucía (€3,219.0 million).

Original story: Expansión

Translation: Carmel Drake

Mortgages To Become €140 Cheaper Per Year On Average

02/01/2015 – Cinco Días

The Euribor, which is the reference rate for most Spanish mortgages, has closed 2014 at a record low of 0.329% and will bring the price of mortgages down some 140 euros per year.

The Euribor began to drop months ago and has arrived at the end of December with a daily rate of 0.325%. So, it has ended the year at a record low of 0.329%, which is 0.214 points fewer than it was in December last year.

XTB analyst Miguel Antonio Marcos has said that 2014 was a “historic” year for the Euribor, since it has managed to set one record low after another since the beginning of the year.

“The fall in inflation and the slowing down of the European economy have come to an end, leading to an unprecedented performance in Europe: the application of unconventional monetary policy by the European Central Bank (ECB),” he told Europa Press.

Marcos indicated that these measures have been reflected in bond markets and in the rate of the Euribor, which started the year in the vicinity of 0.55% and ended the year at below 0.33%, registering a 40% drop. “A really positive year for Spanish mortgage holders,” he added.

Thus, Marcos estimated that the reduction of the rate over the last month will lead to “a slight relief” for mortgage holders who have to review their mortgages during the month of January.

“In principle, we think that the situation is not changing much, but we can not forget that the Euribor traded above 5% in the years before the crisis,” he stated.

Favorable Outlook for 2015

For the next year, the XTB analyst assures that everything leads us to think that the monetary policy carried out by the European Central Bank (ECB) will continue.

“With the economic situation in Europe failing to give definite signs of recovery and with inflation increasingly closer to zero, it appears that the Euribor will not be a problem for mortgage holders,” said Marcos.

In this regard, he said that the most likely scenario is for the 12-month Euribor to be in the region of 0.30%, “as cause and consequence of a new attempt by European bodies to circulate credit, reduce unemployment and make the economy in the ‘Old Continent’ grow at reasonable rates.”

Original article: Cinco Días (by EFE)

Translation: Aura REE

Bank Of Spain Claims Housing Prices Have Hit Rock Bottom After Falling 36% Since 2007

24/12/2014 – El Confidencial

The growth profile of the Spanish economy is beginning to shift. The construction sector, which collapsed after the bursting of the credit bubble between 2007 and 2008, may soon see some light. That, at least, is what the Bank of Spain estimated in its Economic Bulletin in December, which firmly states that price adjustments will come to an end in 2014.

In the words of the central bank, the indicators relating to investment in construction “point to the culmination of their price adjustment this year, after six years of recession”. During these years, construction has reduced its weight in GDP at just over 50% compared to data from 2006, when the last peak of the series was reached.

As a result, the real estate market will finally see the light again, to the extent that, according to the Bank of Spain, the decline in housing prices “may have hit rock bottom in 2014, after two consecutive quarters of small increases that would have placed their compound annual growth rate (CAGR) in the third quarter at 3%.” This means that the housing prices have fallen no less than 36% from their peak in the third quarter of 2007.

The Central Bank affirms, as a positive factor, that transfers of houses “have tended to stabilize,” according to official statistics, at an average level of around 30,000 transactions per month in the period of January to October, which is slightly higher than in 2013, “but still at very low levels,” according to the bank.

The Bank of Spain, however, does not think the problem is over just yet, and believes the recovery will be weak. “The outlook for this sector shows signs of a very moderate recovery, in which uncertainties remain,” as shown in its quarterly report on the Spanish economy. The sector’s recovery, in any case, is predicted to have been decisively influenced by developments in disposable income of households. And in particular, it is estimated that since the fourth quarter of this year, household spending has grown in terms of consumption, in which quarterly growth rate could be placed at 0.6%, and also in terms of residential investment, in which “a small increase may be seen, after the positive rate that appeared in the third quarter (for the first time since 2007).”

The greater buoyancy of household spending stems from growth in employment, which may have exerted a favorable effect on disposable income and confidence, as well as improved financial conditions. Interest rates on loans for housing purchases fell 29 basis points between June and October (according to the latest available data), up to 3%, while the cost of consumer credit and loans for other purposes remained virtually unchanged at 7.2%.

Nevertheless, the inflation rate is predicted to remain negative in the coming months, which reveals the weakness of this increased consumption. Moreover, the Bank of Spain reveals that forecasts show inflation to be decreasing, estimated both for this entire year (with an estimated decline in the GDP deflator of 0.4%) and for 2015 (with an estimated increase of 0.4%). That is to say that the deflation has begun in the year 2014.

The growth in consumption is partly associated with the fact that credit institutions “have continued to gradually transfer a decrease in its sources of funding to the cost of bank loans to businesses and families.” The Bank of Spain, in particular, noted “some increase” in new credit operations for the private sector, in which the rate of decline in corporate and household debt is diminishing, more sharply in the case of families.” According to the report, “All this helps to stabilize the financial position of firms and households and is favorable for spending and investment decisions within the private sector.”

Other factors that influence the recomposition of disposable income of households have to do with the depreciation of the exchange rate of the euro as well as the current “significantly reduced” oil prices.

Original article: El Confidencial (by Carlos Sánchez)

Translation by: Aura REE

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