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

Sabadell Receives 7 Offers to Liquidate its Doubtful Debt

28 June 2018 – Expansión

In the end, seven international funds have presented offers to Banco Sabadell to be awarded one or more of the four portfolios that the entity has put on the market this year to liquidate almost all of its problem asset balance. The funds in question are Cerberus, Lone Star, Blackstone, Oaktree, Deutsche Bank, Bain Capital and CPPIB, although not all of them have bid for all of the assets, given that three of the funds are only interested in the foreclosed properties and the four others only want to purchase the non-performing loans (NPLs).

On the advice of KPMG and Alantra, Sabadell has set itself the objective of divesting toxic assets worth €10.8 billion this month, before the summer. That figure is equivalent to 72% of the bank’s total problem assets, which amounted to €14.9 billion at the end of the first quarter. Of that total figure, €7.5 billion are doubtful balances and €7.4 billion are foreclosed.

This volume of non-performing assets, which is weighing down on the entity’s balance sheet, has been packaged into four portfolios called Challenger (€5 billion), Coliseum (€2.5 billion), Makalu (€2.4 billion) and Galerna (€900 million). Just over half, €5.8 billion, are assets inherited from the purchase of CAM, and, as such, they form part of the Asset Protection Scheme (EPA). As a result, the divestment of three of the portfolios (Coliseum, Galerna and Makalu) must first be approved by the Deposit Guarantee Fund (FGD), which is the entity that will cover 80% of the losses generated by those protected portfolios.

Original story: Expansión (by Sergi Saborit)

Translation: Carmel Drake

Deutsche Bank: BBVA & Unicaja Cut Their Toxic Assets By 15% In 2017

14 November 2017 – Expansión

Deutsche Bank report / Sales to institutional investors of non-performing loans and properties allowed BBVA to reduce its stock by €4,589 million. Meanwhile, Unicaja has decreased its load by €818 million.

The clean up of the banks’ balance sheets is picking up speed thanks to the increasingly common sales of large property portfolios to specialist funds.

Between January and September, the average decrease in the stock of the large banks amounted to 6%; moreover, that figure reached 15% in the case of BBVA España. The next entity in the ranking was Unicaja, with a decrease of 14%.

During the third quarter, Santander España distorted the statistics with the sale of 51% of Popular’s toxic assets (€30,000 million) to Blackstone.

Project Jaipur

BBVA has closed several institutional sales in recent months. One of them, Project Jaipur, was sold to Cerberus, the fund with which it is now negotiating a macro-operation, which would include the sale of its real estate platform Anida. That portfolio comprises loans to property developers backed by real estate guarantees and has a gross nominal value of €600 million.

In February, BBVA sold a batch of 3,500 properties to the fund Blackstone. Another one of the representative operations of the year was the sale of 14 office buildings to Oaktree for €200 million.

Unicaja has sold several plots of land to various real estate developers in recent months. “Unlike in other quarters, during the third quarter of the year, most of the reduction in the banks’ problem assets came from the sale of foreclosed properties, despite the substantial decrease in activity in August”, says the recent report from Deutsche Bank.

Between June and September, CaixaBank was the most active entity, with sales worth €380 million.

The report cites several factors to explain the intensification of this real estate clean up. The first is the increase in the coverage ratio of these toxic assets on the banks’ balance sheets. “The volume of sales is directly linked to the coverage ratio”, it says.

The second is that many of these sales are generating capital gains. According to the data compiled by Deutsche Bank, Unicaja made €40 million in the third quarter and CaixaBank and Sabadell earned €6 million and €7 million, respectively. “These gains will allow them to accelerate future sales”, says the report.

Final quarter

The last quarter of the year tends to be the strongest for these types of operations. Sareb has put a package of doubtful loans up for sale, the vast majority of which are unsecured, for €2,600 million. “We expect to see an additional effort from the banking institutions to reduce the stock at year end. Having said that, the political uncertainty in Cataluna and the upcoming elections may affect prices and/or cause delays in institutional sales”, says Deutsche Bank, which forecasts further stock decreases of 15% in 2018 and 2019. According to its data, CaixaBank, Santander and BBVA are the banks with the highest volume of toxic assets. Since 2015, BBVA has decreased its real estate balance by 27% and Unicaja by 24%.

Original story: Expansión (by R. Lander)

Translation: Carmel Drake

BBVA Sells 3,500 Properties To Blackstone For c. €300M

20 February 2017 – El Confidencial 

BBVA has started the year with the sale of the largest real estate portfolio in its history: Project Buffalo. The portfolio contains 3,500 assets, the vast majority of which are finished homes, but it also includes storerooms, garages and retail premises, worth around €300 million in total. The whole package has been acquired by Blackstone.

All of these properties had been foreclosed and so the bank was holding them on its balance sheet. They are located mainly in Cataluña (28%), Andalucía (20%) the Community of Valencia (18%), Madrid (6%), the Canary Islands (6%) and Castilla-La Mancha (6%).

With this move, the entity has fired the starting gun on a year in which experts hope that the financial sector as a whole will accelerate its real estate divestments, not only of loans with collateral linked to properties, but also in the placement of large blocks of finished assets, like in this case.

The new regulatory requirements have represented a genuine revolution for bringing these types of portfolios onto the market. And BBVA has dealt with this change in the rules by engaging its Strategy and M&A team, led by Javier Rodríguez Soler, to be responsible for closing this kind of transaction.

Two-thirds of the more than €20,000 million real estate-related assets on BBVA’s balance sheet are foreclosed assets, whilst the remainder are loans, a clear indication of the importance for the bank of undoing these positions.

In addition to portfolio sales, the entity chaired by Francisco González (pictured above) has committed itself to joining other players in the market as a way of deconsolidating these assets. On the one hand, it is taking advantage of the merger between Merlin and Metrovacesa, by transferring thousands of homes to Testa; on the other hand, it is working with Santander and Popular to create a large bad land bank, which will allow it to also start divesting its land.

Original story: El Confidencial (by R.U.)

Translation: Carmel Drake


CaixaBank Sells €700M In Debt & Foreclosed Hotels To Apollo

29 December 2016 – El Confidencial

CaixaBank is going to close 2016 with a healthier balance sheet, thanks to the latest divestment operation that it is about to sign. According to financial sources, the banking institution led by Gonzalo Gortázar (pictured above), has reached an agreement with Apollo Global Management to sell €700 million in foreclosed assets linked to the hotel sector. The US fund is hereby going to acquire 20 four- and five-star holiday establishments that the bank has been holding in its portfolio following non-payments by customers.

The transaction, which has been dubbed Project Sun, is just awaiting the finishing touches from CaixaBank and Apollo, the opportunistic fund that purchased 84% of Banco Santander’s real estate company – Altamira – for €664 million and all of Evo Banco, which previously belonged to the former Novacaixagalicia for €80 million, amongst other things. Nevertheless, the agreement between the bank headquartered in Barcelona and the NYC-based firm is limited to two thirds of the portfolio that was initially put up for sale.

The Spanish financial institution, which has been advised by Alantra, had valued Project Sun at around €1,000 million, on the basis that it contained, on the one hand, unpaid loads secured by 112 hotels; and, on the other hand, 32 establishments that the bank had foreclosed due to non-payment. According to the internal documentation from the sales notebook, in total, 11,000 rooms were put up for sale, the largest hotel portfolio of the year. But at the last minute, the entity has decided to get rid of debt amounting to only around €350 million and 20 hotels worth a similar figure, which means that 12 properties have been left out of the agreement with Apollo Global Management.

The reason is that the offers that it received for these other holiday establishments were well below their respective book values, and so they have chosen to not sell them now so as to sell them for a bad price. Most of the hotels and loans are located in Andalucía (37), Cataluña (22) and the Canary Islands (19). Besides Apollo, which has been advised by Arcano and by Gustavo Gabardo, former Director General of NH Hoteles, CaixaBank had also received interest for this portfolio from other so-called vulture funds, such as Starwood, Cerberus, Oaktree and Bank of America, which had already acquired assets from Bankia, Santander, Sareb and Sabadell.

With this transaction, CaixaBank is going to close the year with €2,400 million less in terms of overdue debt, having already completed the sale of other non-performing loan portfolios. On 30 November, it got rid of the portfolio known as “Far”, which it sold for €700 million to Lindorff and D. E. Shaw. In July, it did the same with another package of unpaid credits for €900 million (Project Carlit), which it sold to Goldman Sachs and D. E. Shaw. (…).

This is the eleventh operation of its kind that CaixaBank has completed since it started to try to remove toxic loans from its balance sheet. (…). Over the last two years, it has managed to get rid of non-performing loans amounting to almost €6,000 million, a strategy that has allowed it to reduce its default rate from almost 12% at the height of the financial crisis to just 8.7%.

Original story: El Confidencial (by Agustín Marco)

Translation: Carmel Drake

Fitch: Banks Are Selling Homes With Record Discounts Of 65%

27 October 2016 – Expansión

The housing market is improving, supported by the strong macroeconomic outlook. Nevertheless, this increased optimism is not being reflected in the prices at which banks are selling their foreclosed properties.

According to a report from Fitch Ratings, which will be published today, banks have continued to sell homes during the first half of the year at prices that represent an average discount of 65% on the original appraisal value – the highest ever. “This is because the majority of the assets that have been sold recently are lower quality products, those for which demand was lowest during the worst years of the crisis”, explains the report prepared by the ratings agency’s analysts Christian Gómez, Juan David García and Beatriz Gómez. And the outlook is not much rosier. In Fitch’s opinion, there will only be a reduction in the discounts being applied to these assets if the recovery in the housing market improves significantly.

In this sense, Fitch highlights the role being played by the servicers and other firms that specialise in the management of these types of assets. Specifically, the banks sold the managers of their real estate portfolios to funds such as Apollo, Värde and Cerberus. They now operate as independent firms in the financial sector and “they have had a positive influence on the management of residential mortgages and on the real estate sector in general since they entered the market three years ago”, said Fitch.

“They will have an increasingly strong influence in Spain due to their competitive advantages (more technological capacity and international experience) than the banks”, it added. Fitch estimates that between €20,000 million and €30,000 million of problem assets relating to the real estate sector are now being managed by these platforms, which prefer to reach a consensus with the borrower before pursuing legal channels.

Potential for more lending

The ratings’ agency noted that new mortgage lending grew by 38% during the second quarter of the year compared with the same quarter last year, thanks to the economic recovery and the improvement in financing conditions. Fitch expects this trend to continue because the total volume of credit currently represents just 30% of its pre-crisis levels, and other factors are also at play. This recovery is significantly lower than that seen in other countries, such as Italy, Germany and France, whose credit volumes now represents 80% of their pre-crisis levels.

Original story: Expansión (by D. Badía)

Translation: Carmel Drake

Sareb Requests Permission To Deduct Its Input VAT

11 July 2016 – Expansión

Operations / The company known as the bad bank states that value added tax is designed to be charged to end consumers and asks that it be allowed to deduct it on its incoming assets.

The bad bank was born when it received foreclosed properties and developer loans from the rescued saving banks; and its mission is to gradually divest all of the assets in its possession, before it is wound up in 2027.

The company chaired by Jaime Echegoyen has to pay VAT on the homes that it acquires and for the new properties that enter onto its balance sheet, those that are foreclosed due defaulted developer loans, but it is planning to file a request for permission to deduct this tax in light of the entity’s special nature.

That it what it will ask of the new Government that is created following the next elections, according to official sources. Its objective is that the future Government will refer its request to the European state, where, it seems, it will not face any regulatory problems in terms of its harmonised tax configuration.

The institution argues, firstly, that this tax is designed to be borne by the end consumer, but that the current wording of Law 37/1992 governing VAT, forces it to bear the cost during the exercise of its activity, in operations of a commercial nature.

Secondly, it states that given that it is not able to deduct the VAT, it is forced to pass the charge onto end consumers through its house prices, in such a way that buyers “suffers from an unjustified increase in the tax charge”, since they also have to pay tax on the asset transfer itself. In its opinion, “this bias may be overcome”.

Legal experts at the institution also maintain that allowing the bad bank to deduct VAT from its foreclosed properties, as well as from those received by means of “dación en pago” would not result in a decrease in the funds raised by the autonomous governments. By contrast, they consider that it would boost said amount, given that Sareb would no longer charge VAT that it has been allowed to deduct from the house prices and that decrease would result in an increase in the volume of operations and therefore in the number of properties sold, which means that income from taxes on property transfers would rise.

In terms of the change to regulations in Europe, Sareb argues that Directive 2006/112/CE provides for the possibility of exempting the payment of VAT: In general, it establishes that it is not possible to exempt the sale of properties from VAT before their first occupancy, but that any transfers that are carried out after that first occupancy should be exempt. Sareb hopes that this possible amendment will be accompanied by a transitory regime for second and subsequent sales of unoccupied homes acquired before the change enters into force.

Original story: Expansión (by A. Crespo and S. Arancibia)

Translation: Carmel Drake

Bank Revenues From Asset Sales Exceeded €10,000M In 2015

29 February 2016 – Expansión

Last year, Spain’s listed banks recorded revenues of €10,118 million from the sale of assets from their property portfolios. Popular recognised the highest volume of sales with €2,109 million, followed by Santander (€2,070 million) and BBVA (€2,000 million). These three banks accounted for 61% of such revenues. The remaining 39% was spread between Sabadell with €1,902 million, CaixaBank with €1,312 million, Bankia with €465 million and Bankinter with €260 million.

And these entities expect to increase their sales in 2016. (…).

House sales in Spain increased by 11.1% in 2015, thanks to the growth spurt in the second hand market, to reach 354,132 operations, the highest figure since 2011, according to data from the National Institute of Statistics (INE).

Popular stepped on the accelerator during the year, with a 40.3% increase in these revenues, which meant that it exceeded its forecast sales for the year of €2,000 million, by €109 million. If all goes according to plan, then the bank will close this year with sales of €2,800 million, whereby increasing its volume of these operations by another 33%.


Popular groups these types of assets into its real estate arm Aliseda, which it controls 100%. Aliseda Servicios de Gestión Inmobiliaria, in which Popular holds a 49% stake and Värde Partners and Kennedy Wilson control the remaining 51% stake, is responsible for marketing these assets, which current amount to 31,000 units.

Last year, Santander sold 11,423 properties in total, for €2,070 million, according to the entity. The sale of foreclosed assets amounted to €898 million, with a corresponding gross value of €1,375 million. The bank led by Ana Botín controls 100% of Altamira Santander Real Estate, which holds all of its real estate assets. Apollo is responsible for marketing the assets through Altamira Asset Management after Santander sold that entity to the US fund.

By contrast, BBVA retains control over 100% of its distribution process through its subsidiary Anida. The bank recorded revenues of €2,000 million last year from the sale of 21,082 real estate assets. The entity says that these operations were particularly important during the final quarter of 2015, as their returns improved.

CaixaBank recognised €1,312 million from the sale of some of its properties (€1,380 million in 2014) and €765 million from rental income (€1,132 million in 2014). The improvement in the real estate market meant that these transactions mainly took place during the final quarter of the year, with a gain of 2%, although the final balance for the year generated a loss of almost 6%. (…).

Sabadell sold 10,949 properties for €1,902 million, representing an increase of 16% during the year, thanks to the increased interest from investors in the Spanish real estate market, which allowed the entity to reduce its exposure to problem assets more quickly than forecast in its Triple plan.

In this context, the discounts on the gross value of foreclosed assets have been lower, down from 51% in 2014 to 44% last year, said the entity. Sabadell has started 2016 with a boost in this segment, thanks to the sale of 4,500 homes to the fund Blackstone. (…).

Bankia generated revenues of €465 million from these sales, up by 56% compared with 2014. (…). The entity…channels its sales through Haya Real, a wholly owned subsidiary of Cerberus.

Finally, Bankinter sold 2,496 properties, up by 61% compared with 2014, but turnover from those sales fell by 5.3% to €260 million.

Original story: Expansión (by Elisa del Pozo)

Translation: Carmel Drake

The 6 Largest Banks Reduce Toxic Assets By 5% To €120,000M

10 November 2015 – El Economista

Last week, in its bi-annual stability report, the Bank of Spain warned about the hindrance that the large volume of toxic assets still on banks’ balance sheets means for the financial sector. The national supervisor considers that these kinds of assets are preventing the sector from improving its profitability given the significant costs associated with them, at a time when revenues are still decreasing due to the ultra-low interest rates and the scarce lending activity.

The Bank of Spain estimates that around €224,000 million non-performing assets are still held on banks’ balance sheets in the system as a whole. Of that amount, more than half are held by the six main banking groups, one of which, Bankia, transferred the majority of its foreclosed assets and property developer loans to Sareb in 2012, as part of the rescue plan. At the end of September, the six entities accumulated €120,443 million of non-performing assets in gross terms, excluding provisions for impairment. In nine months, that figure decreased by just 5.39%.

A recent report from Analistas Financieros Internacional (AFI) said that the profitability of the sector would double with the divestment of these kinds of assets, and so it recommended a mass sale in the short term. The entities have already put sizeable packages on the market as they seek to reduce their balance sheets’ exposure to the real estate sector, but some operations have been delayed due to the instability generated by the (political) situation in Cataluña and the approaching general election. Some of those affected have included the block sale of all of Bankia’s properties and the sale of a portfolio of homes by Popular for around €450 million.

Loans to property developers

The decrease in non-performing assets has been driven by a 19.1% drop in loans to property developers, as a result of maturities, the sale of certain lots, discounts on debt, exchanges for properties and the extremely low level of activity. By September, the six entities had cut their financing to the real estate sector by €52,500 million, and for the first time, the amount was lower than the gross value of the properties foreclosed due to non-payment. Those now total more than €67,000 million, as a result of debt conversion processes undertaken by both companies and by individuals, which have driven up the volume by almost 9% since the beginning of the year.

The only large entity that has managed to reduce its portfolio of foreclosed assets is Bankia, but it is worth noting that it conducted a significant clean-up of its balance sheet with a view to the transfer of its assets to Sareb. The properties held by the nationalised bank decreased by 4.11%.

It is also worth noting the 17.27% increase that BBVA has experienced in this respect, primarily as a result of the absorption of CatalunyaCaixa. In this case, the integration of that entity means that the group led by Francisco González is the only one that registered an increase in the volume of loans to property developers, up by 7%. (…).

Original story: El Economista (by Fernando Tadeo)

Translation: Carmel Drake

Bank of Spain: Banks Still Hold Land Worth €28,500M

5 November 2015 – El País

The banks still have not fully digested the over-indulgence in real estate that preceded the crisis. The volume of assets foreclosed by financial entities due to the non-payment of loans amounted to €81,000 million as at 30 June 2015, having decreased slightly, by 0.9%, in one year, according to figures published yesterday by the Bank of Spain in its Financial Stability Report. Moreover, the main component of this €81,000 million hangover, is land, the least productive of all assets and also the hardest to sell. Land represented 35.5% of the total balance, in other words, around €28,500 million of the foreclosed assets held by banks are plots of land.

Since the crisis began, the banks have not been able to significantly decrease the volume of real estate assets on their balance sheets. Although they are selling homes and developments as fast as they can, they are still foreclosing new properties due to non-payment.

Only the clean-up of balance sheets that took place in the second quarter of 2012 and the first quarter of 2013, when the rescued entities transferred most of their real estate assets to the bad bank, led to in a decrease in the total volume. Since the middle of 2013, the volume of properties on the banks’ balance sheets has not stopped growing and it peaked at €82,500 million at the end of 2014. During the first half of 2015, the balance decreased by around €1,500 million, or 2%.

More foreclosed homes

In terms of the composition of the banks’ real estate portfolios, 35.3% corresponds to land, whose weight has decreased by almost 3 percentage points in the last year. Meanwhile, 24.9% are finished buildings (amounting to just over €20,000 million, with a reduction of 1.1 points in the last year), with work in progress buildings accounting for 6.6% of the total, having increased by 1.6 points. Finally, 21.5%, or c. €17,400 million of the total, relates to foreclosed assets resulting from house purchases (which increased by 0.5 points with respect to June 2014).

“If we add doubtful assets to those assets that have been foreclosed in lieu of the debt payments, then the banks’ held assets amounting to €224,000 million on their balance sheets as at June 2015, none of which are generating any revenues for the income statement. These two types of assets, which represent 8.7% of the banks’ total assets in Spain, are placing negative pressure on the entities’ income statements, reducing their ability to generate profits”, says the Bank of Spain in its report.

Original story: El País (by Miguel Jiménez)

Translation: Carmel Drake