Sareb Unlikely To Distribute Any Profits To Its Shareholders

30 December 2016 – Expansión

Accounting circular / The Ministry of Finance has softened its demands on Sareb. In exchange, the bad bank’s owners, namely, the State and Spain’s largest banks, will not receive anything for their investments in the bad bank, for at least the next few years.

The Ministry of Finance has softened the situation facing the shareholders of Sareb (the most important of which is the State, through the Frob), by not forcing it to recognise latent losses in its income statement, like it has been obliged to do until now. In exchange, the Ministry has shut down the possibility that these shareholders will receive any results from their investment, even if the company does manage to generate profits at some point.

The harsh situation created by the accounting circular that the Bank of Spain designed for Sareb has barely lasted a year. According to that legislation, Sareb was obliged, within a period of two years, to reappraise all of the assets on its balance sheet (which proceeded from the real estate portfolios of the former savings banks that received public aid) and recognise the latent losses in the income statement each year, given that the price at which it bought those assets was significantly higher than their market prices.

The reality of all of this was seen last year when, in order to avoid near bankruptcy, the bad bank reduced its capital to zero and converted a substantial part of its subordinated debt (€2,171 million) into capital, to offset some of the losses for the year and restore the equity balance. Sareb recognised provisions amounting to €3,900 million in 2015 and recorded capital of €953 million (2% of the balance sheet) and subordinated debt of €1,429 million.

It was expected that something similar would happen this year, although with a less intense effect, given that most of the assets were reappraised in 2015, and that the capital balance would again be reduced and more subordinated debt would be converted into capital.

But to avoid this, the Ministry of Finance has made two significant changes. The first is that Sareb must continue valuing its assets at market prices, but if those values result in the creation of latent losses, then rather than recognise them in the income statement, they should be recorded in the equity statement, whereby reducing the company’s share capital. In parallel, and to avoid the company having to file for insolvency due to an excessive reduction of its capital, Sareb may also benefit from the exception afforded to real estate companies at the height of the crisis, which exempted them from having to comply with a certain relationship between the value of their assets and their own funds. (…).

Two conditions

In exchange for these concessions, which will undoubtedly give Sareb some much needed breathing room, the new legislation from the Ministry of Finance establishes two conditions. The first is that when an asset is sold for below its acquisition price, the real loss must be recognised in the income statement; and the second is that if Sareb generates profits in the future, then whilst the equity account exists in which the latent losses are being reflected, then all of the profits earned must be applied to that account. That means that, in all likelihood, Sareb’s shareholders (…) will not receive anything for their investments in the company over the next few years. And it is reasonable to think that they will never receive anything, given Sareb’s asset composition.

This is the first time that this fact has ever been acknowledged, more or less explicitly. (…).

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Unicaja Negotiates The Sale Of Its RE Arm With Haya & Apollo

29 December 2016 – Vozpópuli

(…). In recent months, the Málaga-based entity has accelerated the divestment of its investment companies to make some cash ahead of the challenges that it faces over the coming months. First came the sale of Iberdrola and now, Unicaja is in advanced negotiations to sell its real estate arm to Haya Real Estate, the platform owned by the US fund Cerberus in Spain, or Altamira, owned by Apollo (85%) and Santander (15%), according to financial sources consulted by Vozpópuli. Sources at the entity say that the final decision has not been taken yet.

Through this operation, Unicaja wants to replicate the sales carried out by the large banks in 2014: Santander with Altamira, CaixaBank with Servihabitat and Popular with Aliseda. Through those deals, the banks recorded combined profits of more than €2,000 million.

It is critical that the Málaga-based entity generates profits at the moment for two reasons: the tax blow that it is going to suffer, due to the upcoming rise in Corporation Tax (CT); and the need to accumulate capital to pay back the public aid it received for Banco Ceiss (€604 million), over the next year; it has asked Brussels for more time in this regard. This would be an alternative solution to the entity’s debut on the stock market and would allow it to repay the contingent convertible bonds (CoCos) from the Restructuring Fund (Frob), which is what Ibercaja has done; yesterday, that entity repaid €163 million to the public fund. With this, the former savings banks avoid the blow for their shareholders that a debut on the stock market in the current environment would mean, although that comes at the price of them not being able to get rid of their shares.

Subsidiary up for sale

In the case of the real estate arm, the name of the subsidiary that Unicaja is negotiating the sale of is: Gestión de Inmuebles Adquiridos (GIA). It is a platform that administrates and sells the group’s foreclosed residential assets, and it has around 40 employees. It recorded turnover of €108 million in 2015, up by 5% compared to a year earlier.

Overall, GIA lost €114 million last year, because Unicaja recognised its real estate provisions in that company. In theory, this operation would only involve the sale of the management of the assets, not their title, although a small portfolio of around €50 million could also form part of the sale, according to sources close to the deal.

The entity, led until this year by Braulio Medel (pictured above, who continues to control the Foundation that owns 90% of the bank), does not have one of the largest exposures to property in the financial sector. It has foreclosed assets with a net value of €1,051 million, according to the figures as at June, which include provisions, meaning that they have a combined appraisal value of €2,690 million. (…).

The market also expects Unicaja to get rid of some of its other stakes, such as Deoleo, in which it holds a 10% shareholding and Reyal Urbis, in which the Foundation controls just over 4%. (…).

Original story: Vozpópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Sareb Sells NPL Portfolio To Bank Of America & Hayfin

16 September 2016 – Expansión

Sareb has just sold a portfolio of non-performing loans worth €70 million to Bank of America and Hayfin Capital Management (founded by former directors of Goldman Sachs), which is secured by several residential buildings in Madrid. The agents of the operation have been Haya Real Estate and Solvia, who have declined to comment. Sareb does not have its own sales network, but uses the exclusive services of the two real estate managers, together with those of Servihabitat and Altamira Asset Management.

According to sources close to the operation, the discount obtained in the transaction has been 50%.

As a result of the new accounting legislation, operations are now a lot more segmented and therefore smaller.

Solvia, which belongs to Banco Sabadell, has been collaborating as one of Sareb’s agents for almost two years. It won the management of a portfolio containing 42,900 assets, of which 33,000 were properties originally from Bankia and the others were loans acquired from Banco Gallego and Banco Ceiss with various kinds of real estate guarantee.

In March, Sareb completed the sale of another batch of loans, which were secured by industrial logistics assets, hotels and offices, located in Madrid, Barcelona, Cáceres and Tarragona. The nominal amount of the operation amounted to €73.7 million.

The opportunistic funds, the typical stars of these operations, are starting to withdraw from the Spanish market and funds with more potential are now arriving, including Socimis and family offices. The funds that have sold portfolios in the last four years have managed to obtain IRRs of between 10% and 20%, according to business people in the sector.

Sareb was created in 2012 and is owned by the FROB (45%) and by the main banks (55%), with the exception of BBVA. 80% of its assets are loans to property developers and the remainder are real estate assets. Their total nominal value amounts to €107,000 million. By size, the bad bank exceeds its Irish counterpart Nama. Even so its market share barely reaches 4%, because it is a very fragmented market. The large banks compete directly with Sareb in the sale of properties, but bank bad has the advantage of time on its side. It has 12 years to execute its business plan and is under no pressure to list on the stock market.

According to the latest statements by its Chairman, Jaime Echegoyen, Sareb should stop losing money next year. Recently, it has started to develop plots of land from scratch, which will result in 700 homes and €100 million of investment. 21% of Sareb’s revenues are generated by the sale of real estate assets. It is currently selling an average of 27 units per day.

Original story: Expansión (by R. Lander)

Translation: Carmel Drake

Ibercaja Completes Sale Of Caja 3’s Industrial Portfolio

13 September 2016 – Expansión

Ibercaja is still putting the shine on its balance sheet ahead of its IPO, which is expected to take place at the end of next year or the beginning of 2018. Having transferred the administration and sale of 14,000 real estate assets to the platform Aktua in February, it is now on the verge of getting rid of all of its non-strategic holdings.

According to sources at the group, the bank has divested more than 200 business projects since 2012, which has allowed it to reduce its volume of portfolio investments by approximately €285 million. But the most important achievement is that it has now managed to finalise the investment plan inherited from Caja 3, as defined by Brussels, when that entity received public aid in 2012. 129 companies from the former savings banks were identified with an investment volume of €153 million, which means that Ibercaja is fulfilling all the requirements.

Nevertheless, it still needs to return that aid. Caja 3 received €386 million in contingent convertible bonds (CoCos) signed by the FROB, of which Ibercaja returned €20 million in March. The remaining balance has to be repaid between March and December 2017.

These divestments represent one of the pillars of Ibercaja’s strategic plan for 2015-17, together with the repayment of the aid; the issue of €500 million in subordinated debt from last year; the sale of problem debt to property developers; the transfer of its real estate assets to Aktua; and this year, its growth plan in Madrid; and its digitalisation plan, for which it has signed a strategic agreement with Microsoft.

In fact, within its specific divestment plan for 2015-2017, approximately 100 companies were identified as possible divestment targets, whereby reducing the volume of its investment portfolio by approximately €180 million. Currently, according to sources at the group, it has divested 53 companies, including total and partial sales. In total, it has decreased its investment in corporate projects by €68 million, with a positive contribution to the group’s consolidated result of €10 million. Its profits amount to €23 million since 2012. Meanwhile, sources at the group added that capital amounting to €27 million has also been freed up. In total, own funds have increased by €50 million.

The companies

In addition to the sale of Gestión de Inmuebles Salduvia, which was included in the agreement reached with Aktua in February this year, Ibercaja’s other major divestments include, by order of importance: the divestment of the Naturiber Group (specialising in the meat sector), Portobelio and Ahorro Corporación Infraestructuras (private equity funds), Ahorro Corporación Gestión (the fund manager), Titulización de Activos, Imaginarium (the toy retailer) and ATCA (a technology development company).

Over the next few years, Ibercaja plans to continue executing its divestment plan, which involves more than 50 additional sales, which will allow it to reduce its portfolio by approximately €112 million more, with the resulting positive impact on the income statement and an efficient allocation of capital.

Ibercaja reported profits of €72.3 million during the first six months of 2016, up by 3.7% compared to a year earlier, thanks to the sale of its real estate arm, as well as sales of debt.

Original story: Expansión (by D. Badía)

Translation: Carmel Drake

Bankia & Santander Lead Decrease In Mortgage Default Rate

12 September 2016 – El Economista

The economic recovery is substantially easing the burden of provisions that the banks are making against their non-performing loans. The volume of bad debts have been decreasing gradually over the last few months, thanks to the overall improvement in the financial circumstances of families and companies.

An important part of this respite is coming from the mortgage segment. Families now hold financing to acquire homes amounting to just over €525,000 million in total. Unemployment, which wrought havoc during the crisis, had increased the default rate to more than 6%. But that trend changed at the end of 2014. Since then, the default rate of these types of loans has decreased to 4.7%, on average. In other words, the volume of mortgages with delayed repayments has decreased to €25,000 million.

Not all of the banks have managed to benefit in the same way from the improvement in Spaniards’ fortunes. Bankia and Santander are the entities that have benefitted the most over the last year. Between June 2015 and June 2016, Bankia’s default rate decreased by almost a quarter, from 6.76% to 5.02%, and by nearly a half since its historical peak in 2014. Even so, the absolute percentage of the nationalised group still exceeds the system average.

The decrease in Bankia’s default rate has come at a time when the bank is significantly reducing the volume of loans it grants to acquire homes. In the case of Bankia, the cut in the volume of financing is similar to that recorded in the sector. It has decreased by 4.3% in twelve months (…).

Since 2012, the nationalised group’s strategy has involved rebalancing its credit portfolio, with a drop in mortgages and an increase in loans to SMEs and individuals.

In the case of Santander, the default rate has decreased by 0.81 percentage points to 4.59% over the last twelve months, allowing the bank to maintain a ratio that it slightly lower than that of its rivals. In 2013, the Cantabrian entity’s default rate (6.7%) exceeded the sector average. Since then, the decrease has been gradual.

The group chaired by Ana Botín has also reduced its portfolio of doubtful debts, whilst its volume of mortgages has decreased by 3.4%. In fact, of the major entities that have published their data so far, Santander and Bankia are the ones that have reported the most significant decrease in financing.

Three banks, BBVA, CaixaBank and Ibercaja, have gone against the trend in the sector, suffering slight increases in their respective default rates. The first has been hurt by the incorporation of Catalunya Banc in April 2015, which is leading to an increase in its impairments, even through the operation to acquire the entity excluded the most harmful mortgages. They were transferred to a fund owned by Blackstone with certain government guarantees provided by the public rescue fund (Frob).

Despite the increases, CaixaBank and Ibercaja have two of the lowest default rates in the sector. In both cases, the default rate of home loans to individuals fell below 4% at the end of June this year.

For most entities, the volume of loans are falling at rate of less than 2%, as a consequence of the boost in new business and the open war to secure clients. At Unicaja, the decrease has been less than 1%.

Market share

BBVA is still the leader of this segment, with more than €89,437 million loans granted to households to buy a home, representing a market share of 17% (…). It is followed by CaixaBank, with financing lines amounting to €88,557 million (17%) and Bankia with €62,200 million (12%). Santander is ranked fourth, accounting for less than 10% of the mortgage market. (…).

The main entities have a combined balance of foreclosed homes amounting to more than €17,000 million. The bank that holds the largest portfolio of foreclosed homes is BBVA, with almost €4,500 million. CaixaBank is ranked in second place, with more than €2,762 million, whilst Bankia, in third place, has €2,700 million. (…).

Original story: El Economista (by Fernando Tadeo)

Translation: Carmel Drake

Sareb Has Returned €1,000M Assets To Banks

24 June 2016 – Expansión

In recent years, Sareb has found itself with an unexpected line of business as it works to slim down its balance sheet: it has been returning certain assets to the entities that transferred them to it initally. The company chaired by Jaime Echegoyen (pictured above) has returned more than €1,000 million in real estate assets and loans linked to the property sector to groups that transferred it the assets in the first place.

Those €1,000 million represent 2% of Sareb’s balance sheet upon creation – €50,781 million – and 13.5% of the total reduction in its asset value since 2012.

The assets have been returned due to information or appraisal deficiencies made by the transferring entities, at the time of transfer, between 2012 and 2013. Thus, some assets were transferred to Sareb with values that exceeded their real values and other should not have been transferred to the company at all, as they did not meet the requirements.

Financial sources consulted indicated that some personal loans were transferred to Sareb, which had nothing to do with the purpose of the company.

According to Sareb’s annual reports, corrections are made to asset purchase deeds “for the purposes of identifying the improper categorisation of assets, changes in the perimeter and errors or variations in the estimated valuation on the transfer date”.

Bond returns

With these properties and loans, the entities have returned €1,000 million in bonds that they received in exchange for their assets. (…).

Sareb was created at the end of 2012 from the assets of all of the entities that received public aid during the European bank rescue. Firstly, the banks controlled by the Frob – Bankia, Catalunya Banc, Banco de Valencia, NCG Banco and Banco Gallego – transferred their properties and developer loans, and then those entities that had received aid but not been nationalised –Liberbank, Caja 3 and Banco Ceiss, together with BMN– transferred their assets.

Of all of these entities, Catalunya Banc has received the most assets (in return) from Sareb over the last three and a half years. The entity absorbed by BBVA has now been returned €365 million in total, mainly between 2013 and 2014. CB is followed in the ranking by NCG Banco – now Abanca – with €182 million; Bankia with €168 million; and Banco de Valencia – purchased by CaixaBank – with €161 million.

By year, the most active period in terms of property and loan “adjustments” was 2014, when Sareb returned almost €550 million worth of assets to the entities. But the real estate company is still finding problems with the homes and loans that it was transferred, and this year it has already sent back assets worth almost €60 million to Liberbank, Bankia, Caja 3 and Banco Ceiss. (…).

A new tool

Recently, Sareb launched a new internal tool to help it handle all of the assets that it has on its balance sheet and expedite their transfer. It is called Atlas and it performs more than 300,000 valuations each year, automatically, cross checking market data with socio-economic indicators, such as rental income and population size in each place. (…).

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Banks & RE Firms Sell Affordable Homes In Seseña

10 May 2016 – La Voz de Galicia

Its silhouette – large blocks of toasted brick emerging out of the green fields of Toledo province – attracts attention from the Madrid-Andalucia motorway. The urbanisation of El Quiñón or Residencial Francisco Hernando, as its developer, Paco, el Pocero, named it, is located in the municipality of Seseña (Toledo), which borders Madrid, in an image linked to the real estate bubble whose crash hit it hard, but from which it is striving to break loose.

It wants to show that it is just another neighbourhood in Seseña and that, as such, the ghost town with deserted streets that received its first visitors in the Summer of 2007, when the first half a dozen residents moved in, of the 580 who received the first sets of keys, has gone from being a dormitory town to one where 6,700 people are officially registered, of which 1,600 are under 16 years old.

Amongst those that financed Pocero’s mega project – a PAU containing 13,000 homes of which only 5,096 have been constructed in two phases – at the height of the boom, was the former Galician savings banks. In fact, one of the financing operations, by Caixanova, is now under the spotlight of the National Court, along with the allegedly irregular loans that the FROB sent to the Anti-Corruption Prosecutor at the time. The Town Hall highlights that the neighbourhood currently has an occupancy rate of 80% and that the “reactivation” of the real estate sector has been felt “over the last year or so”, when the banks started to put the stock they holds in Seseña on the market. “The population has grown very fast”, say sources at the Town Hall. And the census confirms this: El Quiñón has more than doubled in terms of the number of inhabitants in five years, from 3,280 residents in 2011 to 6,700 currently, who represent 30% of the municipality’s total population (22,500).

Slow start

But the start – which is now happening – is slow and not free from difficulties. The key factor for Seseña to become an object of desire for potential buyers once again is prices, which have decreased by more than 50%. At the moment, for example, Aliseda has several two bedroom homes for sale for €85,000, although in 2012, other real estate arms of banks such as Santander and Sabadell ended up selling homes off virtually at cost, for less than €60,000 (…).

Original story: La Voz de Galicia (by A.B.)

Translation: Carmel Drake

Sareb Expects To Pay Its Bondholders A €1,000M Coupon

13 May 2016 – Expansión

Sareb’s shareholders are fully aware that they will never receive any dividends. Neither the private institutions, mostly banks and insurance companies, which own 55% of the so-called bad bank; nor the State, which controls the remaining 45% stake through the FROB (‘Fondo de Reestructuración Ordenada Bancaria’ or Fund for the Orderly Restructuring of the Banking Sector) expect to receive any returns on their capital, in accordance with the company’s original business plan.

But the institution led by Jaime Echegoyen (pictured above) plans to repay them by other means. Sareb is hoping to pay its shareholders a coupon of €1,000 million, over its remaining twelve years of life, in return for the subordinated debt that they subscribed to, to get it on its feet, according to sources close to the bad bank.

In order to provide the company with sufficient own funds, the shareholders subscribed to convertible subordinated bonds amounting to €3,600 million, which were added to the €1,200 million of pure capital that had been contributed by its investors, to take its own funds to €4,800 million.

Accounting circular

The new accounting framework established by the Bank of Spain, which came into force last year, forced Sareb to individually appraise all of its assets and adjust them to reflect market value and, in this way, to undertake a thorough clean up (of its balance sheet), which resulted in significant losses and additional capital requirements.

To cover those without resorting to a capital increase, the company capitalised debt amounting to €2,170 million. In this way, only the remaining subordinated debt holders (who hold €1,429 million) will end up receiving the coupon.

Before the shareholders receive the interest amounting to 8% p.a., Sareb will have to generate sufficient consolidated profit before tax and cash and, also, have paid the interest rates on the senior bonds that it issued to the former rescued savings banks in return for the foreclosed assets and property developer loans that they transferred to it.

Two annual payments

After the shock of the accounting circular, the so-called bad bank is confident that it will be able to leave behind its losses and break even in 2017, before generating profits in 2018, the date when the bondholders will begin to receive the annual coupon for the first time.

Nevertheless, their remuneration would not necessarily be reduced in the event that Sareb has to wait until 2019 generating any profits, given that the amount of interest accrued in 2018 would be rolled into the receipt for the following year. Thus, on the payment date, they could receive the annual payment for the current year as well as for the previous year. They may not receive more than two payments.

Santander and CaixaBank

The conversion of debt into capital, approved by Sareb’s General Shareholders’ Meeting at the beginning of May, did not affect the subordinated debt stakes held by each one of the bondholders, most of whom are also shareholders. As such, and until the operation goes ahead, Santander is the largest private bondholder, with a 16.6% stake, amounting to €237 million.

The next largest bondholder is CaixaBank, which holds 12.2% of the debt, worth €174 million, followed by Sabadell, with a 6.6% stake (€94 million) and Popular, with a 5.7% stake (€81 million). Meanwhile, the State holds debt amounting to €656 million, through the 45.9% stake that it owns through the Frob.

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

Translation: Carmel Drake

Sareb Reduces Its Assets By Just 6% In 3 Years

9 May 2016 – El Economista

Sareb has reduced the number of assets it owns by just 6.1% since its creation at the beginning of 2013. In the last three years, the company chaired by Jaime Echegoyen has decreased its volume of properties and loans by 12,091 units, representing 6.1% of the total, and so still held 186,120 assets at the end of last year, according to its annual report approved by the General Shareholders’ Meeting.

The firm, which was created using the toxic assets of the entities that received state aid, has twelve years left to sell off its remaining assets, which are valued at €43,000 million, after the sales it has already completed and the impairment in its appraisal values as a result of price decreases.

The small reduction in the number of loans and properties is due, in part, to the transformation of the portfolio into more liquid assets. Since it was created, Sareb has been converting loans in homes and land, so as to bring them onto the market more quickly in the face of their non-payment. In this way, the volume of financing lines to property developers has decreased by around 10,000, to just over 80,000, whilst the number of properties has been reduced by around 2,000, despite the fact that its divestments since the creation of its semi-public capital exceed 30,000.

Sareb’s General Shareholders’ Meeting approved the accounts from last year, which are weighed down by the new provisioning circular. Moreover, it authorised the exchange of subordinated debt for capital to strengthen its solvency, after recording significant losses in prior years. The company will convert €2,170 million in total. Following this operation, the State – through the Frob – will slightly strengthen its stake, since it holds more debt that the other shareholders. It will go from owning 45% of the shares to 45.9%.

In addition, several insurance companies will acquire small stakes in the company’s share capital, given that, until now, they only held subordinated bonds. The remaining shareholders – the banks – will see their shareholdings diluted slightly. Santander will continue as the main private shareholder.

Original story: El Economista (by F. Tadeo)

Translation: Carmel Drake

Sareb Unlikely to Acheive Any Of Its Goals For First 5 Years

29 December 2015 – Economía Digital

Sareb, the bank that was formerly chaired by Belén Romana and which, following her resignation, is now led by Jaime Echegoyen (pictured above, centre), is about to close its third year of activity. And it is doing so with a great deal of uncertainty over whether it will be able to fulfil the four main objectives it set itself in 2012.

Those objectives were: to reduce its balance sheet by 44% by December 2017; to repay 49.9% of its €50,781 million ordinary debt by that date; to have sold 45,000 homes, also by that date; and to guarantee shareholder returns of between 13% and 14%.

Unrealistic goals

The majority of its shareholders, even initially, did not expect to receive such high returns. But it seems like the other objectives are not going to be easy to acheive either, above all the main one: to repay €25,000 million of its debt within the next two years, half of which it paid out to acquire its 197,500 assets (more than 107,000 real estate assets and almost 91,000 financial assets).

Despite the work performed over the last three years, and having repaid €8,500 million of the €50,781 million that it must return to the savings banks that transferred those assets, it is a long way from achieving the objective set out for the company’s first five years of operation. To repay half of its ordinary debt between 2016 and 2017, it must fork out around €16,000 million.

Untenable position with increasing interest rates

And all of this is happening in an enviable situation in terms of interest rates, which meant that Sareb was able to reduce its financing costs, by lowering the spread on the renewal of its bonds, at the end of the first half of the year and will do so again at the end of 2015. In the event of an increase in interest rates, which will happen, sooner or later, the situation will automatically worsen.

The first step that Sareb must take to be able to repay half of its debt by the end of 2017 involves reducing its balance sheet by 44%. So far, as at June 2015, it had reduced its assets by just 14%. And then only thanks to the good performance of the financial assets, which decreased by more than €7,000 million, given that, by contrast, the value of its real estate assets has barely changed from the initial balance of €11,357 million.

Minimal reduction in assets

That lack of variation in terms of the value of its real estate assets is due to the fact that the sales that have been made fall well short of the 45,000 house sales forecast between 2013 and 2017, and because the foreclosure of property developer mortgages have ended up increasing the number of properties on the bad bank’s balance sheet.

At the end of 2015, Sareb still owns more than 90,000 of the 107,000 real estate assets that were transferred to it when it was first created, in February 2013, despite numerous campaigns launched in December by both the bad bank and by the servicers entrusted with the sale of these assets.

New accounting circular

And as if that were not enough, the Bank of Spain published a new accounting circular earlier this year. It was both expected and feared by Sareb, and it obliges the bad bank to individually value its assets at market prices, compared with the criteria used when they were transferred, which involved average discounts by asset type.

In theory, the accounting impact of the measure is not expected to alter the revenues streams and, if, as expected, new provisions are required, then they will be drawn from the conversion into capital of the amounts required from the €3,600 million subordinated debt in issue and subscribed to by around thirty investors. Those investors include the State, through the FROB, which is the main shareholder, with €1,652 million, followed by all of the main banks, with the exception of BBVA.

Original story: Economía Digital (by Juan Carlos Martínez)

Translation: Carmel Drake