Sabadell Could Receive up to €400M for Solvia

24 October 2018 – Expansión

Change of tack for Sabadell. The bank has put Solvia up for sale, its real estate subsidiary, which it owns in its entirety, to try to earn €400 million, according to sources familiar with the process. Sabadell has awarded the mandate to sound out offers to Alantra, although other investment banks may also be advising the entity. Sources at the bank preferred not to comment in this regard.

Sabadell has activated the sale of Solvia three months after cleaning up its balance sheet to remove €11.5 billion in toxic assets. At that time, it decided to go against the trend in the sector and not divest its real estate platform, taking advantage of the sale of the portfolios.

Sources at the entity defend that the real estate platform holds significant latent value.

Other sources in the sector estimate that a reasonable price that the bank could obtain for divesting this asset is €200 million. That figure is equivalent to four times its EBITDA, a reference that the market has used for the sale of the property management arms of Servihabitat (CaixaBank) and Aliseda (Popular).

Sabadell’s strategy of separating the sale of the two portfolios from that of Solvia is to maximise revenues.

As is typical in these types of transactions, the final price will depend on whether the management of future toxic loans, known in the financial jargon as NPLs, are included in the sale.

Appetite

Alantra has already received interest from three opportunistic funds. One of the best positioned is Cerberus, according to various financial sources. In fact, the US fund acquired two large portfolios of foreclosed properties (Challenger and Coliseum) from Sabadell in the summer, with a combined gross value of €9.1 billion.

The US fund’s Spanish platform, Haya Real Estate, could gain muscle with the operation to accelerate its plans to debut on the stock market. And it could also benefit from important synergies, given that it already manages almost €40 billion in assets.

Sources at the sector also point to Intrum, the new brand that the Norwegian fund Lindorff is operating under, following its merger with the Swedish firm Intrum Justitia, and a new international player that wants to enter the European market with this operation, whose name has not been revealed.

In theory, the deadline for firm bids for Solvia, through binding offers, will close this month. Nevertheless, Sabadell is already holding very advanced negotiations with a single fund to sign the sale of Solvia, according to sources in the know. Sabadell has been weighing up the sale of its real estate platform for months. Jaime Guardiola, CEO of the bank, admitted at the beginning of the year that it was considering putting it on the market in light of the appetite from the funds for real estate and these platforms.

Solvia manages 148,000 assets, with a value of more than €30 billion. Since 2015, the company has focused on the marketing of new build developments and has put more than 10,000 homes on the market. It has 36 franchises and 18 own centres, which together make 54 offices located all over Spain (…).

Original story: Expansión (by R. Sampedro & S. Saborit)

Translation: Carmel Drake

Solvia: Sabadell Puts its Real Estate Subsidiary Up For Sale

17 October 2018 – El País

Sabadell is going to listen to offers from several real estate vulture funds that are interested in acquiring its subsidiary Solvia, the manager of its properties. The entity, which declined to comment, has now entrusted the sales process to an investment bank. In the summer, Jaime Guardiola, CEO of Sabadell, justified holding onto Solvia due to “the great contribution it makes to the bank”, but now he is taking a step towards selling it. Sources in the sector indicate that Sabadell wants to strengthen itself and take advantage of the good climate still being enjoyed in the real estate market.

The banks are getting rid of properties before the booming market deflates. They are selling not only portfolios, but also the companies that specialise in the management of those real estate assets, known in the sector as servicers. Until now, it was typical for the banks to include their servicers in the package of asset sales: that is what CaixaBank did with Servihabitat and BBVA with Anida.

But, Sabadell wanted to get more mileage out of its subsidiary and so decided not to sell Solvia when it divested around €12.2 billion of its properties to Axactor, Cerberus, Deutsche Bank and Carval. Nevertheless, Sabadell has now taken the definitive step and is open to offers from the interested vulture funds. According to sources in the market, the interested parties include Cerberus and Oaktree.

148,000 assets under management

Based on data as at May 2018, Solvia is one of the leaders in the real estate services market in Spain, with a portfolio of 148,000 units in assets under management, whose value exceeds €31 billion, according to the entity. In a report from Goldman Sachs, Sabadell indicates that Solvia’s annual profit amounts to €40 million.

The company has extensive experience in the marketing of new build developments, given that it has placed more than 10,000 homes in new developments on the market since 2015. At the moment, Solvia has 55 developments up for sale. In terms of rental, as of October, the firm was managing 32,000 assets, of which 74% belong to Sabadell. Solvia also works with other clients, including Sareb.

The report from Goldman Sachs noted that Sabadell could sell Solvia as a way of raising its capital ratios, with little detriment to its income statement.

Market sources agree with these arguments to explain the step taken by Sabadell. On the one hand, as the European Central Bank has indicated, entities must accelerate the sale of all businesses relating to the real estate sector. The banks are aware that times of lower economic growth will come and understand the importance of taking advantage of the appetite that the large international funds still have for Spanish property.

On the other hand, the sale of Solvia will also result in cost savings, a reduction in the workforce and, above all, lower capital consumption. In the last quarter, between March and June, Sabadell’s capital ratio decreased by one point, from 12% to 11% for its CET 1 fully loaded capital ratio (the highest quality indicator). The limit on the basis of which the ECB applies severe measures is 10.5%.

This decrease was due to the problems that Sabadell has been facing with its British subsidiary TSB, which was left without a service for weeks. Between March and June, the bank lost €138 million in provisions against real estate portfolios and the problems at TSB.

Original story: El País (by Íñigo de Barrón)

Translation: Carmel Drake

Sabadell Acknowledges to Goldmans that it is planning to Sell Solvia

1 October 2018 – Bolsamania

The sale of Solvia is on the table. Or, at least, that is what Sabadell has said to Goldman Sachs. Representatives from the two entities held a meeting last week in which Sabadell reiterated its forecast that it would save €150 million per year from the sale of its doubtful assets, including the sale of the servicer.

“The company reiterated its aim to save €150 million per year from the sale of its doubtful exposure, which it is hoped will offset the negative dynamics in the United Kingdom”, said the US entity in a report drafted after the meeting with Sabadell and with other entities, which was published last week.

The document also indicates that “the managers (of Sabadell) highlighted that this aim assumes the sale of Solvia”. The US entity is considering two scenarios, both the sale of Solvia and its continuation within the Banco Sabadell group. According to explanations from Goldman Sachs, the potential sale of the servicer could be good for the bank’s capital and would not dilute its profits.

Alternatively, if the company decides to hold onto Solvia, the entity’s profits would be higher than forecast given that Sabadell would continue to receive the profits of €40 million that Solvia contributes to it, indicates Goldman Sachs in its report.

A spokesman for the entity explains that, in any case, Solvia has never been a core business for Sabadell, in other words, it has never formed part of its main focus. On occasion, in fact, the bank’s CEO, Jaime Guardiola, has explained that “its business” is banking and not real estate. In any case, the spokesperson indicates that the day that a good opportunity presents itself, the bank will assign Solvia “a valuation”.

Sale or stock market debut

The sale is one of the possibilities that Sabadell is considering for Solvia, but it is not the only one. Sources in the sector consulted by Bolsamanía explain that the bank has already received some offers for the real estate asset management company, although it has not ruled out any of them yet.

Another option that the entity would have if it decides to divest the servicer would be to list it on the stock market, a possibility that the market has speculated about on several occasions over the last few years. Nevertheless, the same spokesperson for Sabadell explained that currently there is more “appetite” to buy the “servicer” than to invest in it in the event that it were to debut on the stock market.

In any case, the only fixed plans for Solvia, for the time being, are to remain under the ownership of Sabadell, given that the company is responsible for exclusively managing the assets that the bank is going to transfer to Cerberus Capital Management following its agreement in the summer.

Sabadell will transfer the majority of its real estate exposure to that fund, comprising assets with a combined gross book value of around €9.1 billion (€3.9 billion net). The operation is structured around the sale of the Challenger and Coliseum portfolios to several newly-created companies, which the fund will control (80%) and in which the bank will own the remaining stake (20%).

The last servicer

Solvia is the last bank servicer that is still owned by the entity that created it. Although Sabadell has transferred most of its property to Cerberus, it has held onto its servicer, unlike the other large banks, which have transferred their asset management companies to the different funds to which they have agreed to sell the assets managed (…).

Sabadell launched Solvia Gestión Inmobiliaria ten years ago, in 2008, and retains ownership over it today, with a workforce comprising around 800 employees and with assets under management of more than €30 billion, as well as €3.2 billion in loans managed.

Original story: Bolsamania (by Elena Lozano)

Translation: Carmel Drake

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