Banks continue to sell doubtful portfolio.

Step by step, the slow digestion of the Spanish real estate collapse advances, and banks continue to get rid of the awarded properties as well as of the doubtful credit portfolios.

Recently BBVA has sold a portfolio of nearly 1000 residential properties to the U.S. hedge fund Baupost Group, with a value in books of 100 million Euros. Although the selling price is unknown, this type of transactions usually includes important discounts.

The operation is part of a more ambitious one started in 2012 and called Camelia that planned to sell 1.500 million Euros in doubtful loan and awarded assets.

Last July, BBVA transferred 300 million Euros in default consumer credits to the fund York Capital and to Savia Asset Management, the managing company from Javier Botín. BBVA has nearly 6.400 million Euros in awarded assets and pragmatism imposes, as it is necessary to cleanse a highly provisioned balance sheet.

Other wholesale operations in the financial sector have been the ones from Santander in 2012, selling 500 million Euros in mortgages to Cerberus and Lone Star; the one from Sareb this year, transferring 51% of a fund of banking assets to HIG Capital for 100 million Euros and the more recent one from Banco Sabadell, that has gotten rid of a lot of 953 real estate assets, with a value in books of 88 million Euros.

The “Sareb effect” makes defaulting rebound.

The default of credits awarded by Spanish banks to homes and companies increased again in March up to 10,47%, after decreasing in February as a result of the transfer of toxic assets to Sareb or bad bank.

The total amount of doubtful credits has reached 163.257 million Euros, staying near the levels registered prior to the rescue of banks, in spite of having an increase of around 1200 million Euros in reference to February, according to data published by the Bank of Spain. Nevertheless, this figure has increased by 15289 million Euros since last year.

In spite of the stabilization, the defaulting in banks in March establishes a gap of 1,25 percentage points regarding the maximum level of the previous crisis, in February 1994, when it was established at 9,15%. It also increases by 2,1 percentage points over the level reached in March 2012 (8,3%).

In the last few months, the increase of defaulting had slowed down, although this non payment rate reached an historical record in November, with a default rate of 11,38%.

The analysts consulted by Efe and Europa Press rule out that the number of clients that fail to pay their loans will be reduced in the next few months. It will rather be stabilized or it will grow at a more moderate pace than until now. The facts stressed by all experts as being the cause for this behavior are the effect of the deleveraging Spanish families and companies are carrying out, and on the other side, the consequences of the deterioration of the economy and the unemployment, due to the lack of credit among other reasons.

In any case, in view of the deterioration of the portfolio of loans, the financial institutions have raised their financial cushion against losses due to the requirements of the last measures to restructure the financial sector and their own will, for an amount of 114.887 million Euros.

This movement is practically similar to the one carried out on the previous month when it was established at 114479 million Euros. It nevertheless represents an increase in the value corrections due to the deterioration of credits of 33,1% .

The Supreme Court forces banks to warn their customers that the minimum level clauses limit the discounts on mortgages.

The Supreme Court has taken advantage of a lawsuit against BBVA, Cajamar Caja Rural, Sociedad Cooperativa de Crédito (nowadays Cajas Rurales Reunidas) and Caja de Ahorros de Galicia, Vigo, Orense y Pontevedra (nowadays NCG Banco) where the nullity of those clauses that establish a minimum interest rate had been demanded, in order to set a legal precedent.

It stresses that in the above mentioned case the nullity of those clauses is declared due to a lack of transparency, and therefore it declares that “it is not enough that the clauses by themselves are understandable”. The court rules that the nullity of these clauses “does not affect the subsistence of the agreements nor the amounts that have been already paid”.

The Supreme Court establishes that the minimum level clauses, described as “fair”, are valid when they comply with the requirements of special transparency demanded in the agreements signed with consumers.

It also stresses that consumers need to be informed that when the interest rate drops to a certain level, the loan transforms itself into a loan with a fixed interest only changeable upwards and that they will not benefit from the falls of the reference index (generally the Euribor).

They should also be informed “clearly and prominently”, preventing the clauses from being overlooked by customers. The Supreme Court also indicates that the consumer should be informed of other products so that he can compare and decide after having enough information.

(…) Before analyzing the matter, the court points out that in the case of abusive clauses, the courts should “moderate” the rigidity of the process, so that it “is not necessary” to adjust to the structure of appeals.

(…) It estimates that the clauses are not transparent as, among other things, they are included “jointly” with maximum level clauses and as an apparent compensation and there are no simulations of the different scenarios related with the expected behavior of the interest rate when the agreement is signed.

(…) After analyzing the complaints presented by the plaintiffs, the court rules against the banks forcing them to eliminate the examined clauses from their contracts and banning their use in the future as they were contemplated in those contracts. (…)

Source: Expansión

Linde estimates that the uncovered refinanced credits reach 88.300 million Euros.

The Bank of Spain quantified yesterday, for the first time, the volume of the refinanced portfolio of Spanish banks: 208.206 million Euros, 13,6% of the awarded credits. Four years after the supervisor provided the only existing official figure until now (in 2009, the Bank of Spain declared that the volume of properties and renegotiated loans was equivalent to 2,4% of the balance of the sector), the regulator publishes the in-depth analysis of a portfolio that has been in the center of public attention since the crisis started.

Following the guidelines of Brussels, the Bank of Spain introduced last summer new information requirements on restructuring processes, which have been complemented with the hardening of the criteria on refinancing announced last week. This strategy, more transparency and less provisions, is the same that was applied to reduce the doubts of investors on the greatest weakness of banks: the real estate exposure. In this occasion, however, a lower impact on provisions is expected.

Out of the 208.000 million Euros in refinanced credits, 37% (77.000 million Euros) are loans classified as doubtful, with a coverage of 40,6%. Another 42.900 million Euros (20,6%) are recorded as substandard  loans or with a risk of default. Their coverage reaches 18,4%. The remaining 88.300 million Euros are loans to families and companies with financial difficulties that are classified as being up-to-date (normal risk) and with no specific coverage.

In –less frequent- situations where the real economy experiences two consecutive recession processes, a part of the refinanced operations can become doubtful”, the regulator declares in his last Financial Stability Report. “This is why, transparency is given a growing importance on the international level, providing the market with policies and data on these operations”, he points out.

The stress test carried out last summer by Oliver Wyman on Spanish banks in order to calculate their capital needs was also an unprecedented example of public information. The delay of the Spanish economy in leaving the recession behind has suggested that the sector might be in need of additional capital. The supervisor, however, stresses that the conclusions of the test are still valid. The real rate of default in 2012 has been lower than expected in the test and, on the contrary, the result before provisions of banks has been better than expected (20.000 million Euros opposite to the gap between 14.000 and 16.000 million Euros planned in the test). Should the new macroeconomic plans for Spain until 2014 be applied, the probability of default of the portfolios (a key factor to calculate the losses) would be higher than the ones foreseen in the most optimistic scenario of the test, but would be far from the most extreme hypothesis.

On the other hand, the supervisor confirms the general fall of credit, of -7,1% in March. The acceptance rate of loans to companies has dropped from 45% to 30% since 2006. The cuts have been more profound in nationalized banks “due to the more difficult financial situation suffered in the last few years”.

Santander sells 300 million Euros in consumer loans to a vulture fund.

The Santander group has sold a portfolio of 300 million Euros in default consumer loans to Elliott Management, with a discount of 96%. This vulture fund, which keeps a virulent dispute with Argentina on the release of its sovereign debt, intends to do more operations in Spain.

The multimillionaire Paul Singer, public enemy number one in Argentina, lands in Spain. This investor has acquired a portfolio of default consumer credits from Santander Consumer Finance through its fund Elliott Management with a nominal value of 300 million Euros. Official sources from Santander declined any comments on this operation.

The price paid by Singer´s investing company is practically symbolic: around 12 million Euros, according to sources within the market. The difficulty in being able to recover anything from a portfolio of 87000 operations leads banks to offer bargain prices in order to get rid of them.

For Elliott Management, founded in 1977 by Paul Singer and with 21000 million dollars (16170 million Euros) in managed assets, this operation is the beachhead for future acquisitions in Spain. The group has available funds and considers that the current situation of the Spanish financial sector presents good business opportunities.

The majority of loans within the sold portfolio are for the purchase of cars, although there are also personal loans and for companies. The average amount is 3500 Euros.

The Santander group has closed similar operations during the last few months. In October 2012 it sold a portfolio of loans with a nominal value of 1000 million Euros to Bank of America Merril Lynch and in April 2012 it got rid of another 1000 million Euros in consumer loans, which were transferred to Fortress, specialized in the purchase of default loans.

The company Gesif has participated as a consultant in the operation, in order to measure the recovery possibilities of this portfolio and will offer Elliott its services to manage those default loans.

Paul Singer´s preference for the acquisition of high risk assets has lead him to conflicts with several governments, once his firm has tried to charge its investments in sovereign debt.

The most notorious case was the open conflict with the Argentinian government. Singer keeps a legal claim against the South American country for the non payment of a debt of 370 million dollars (around 270 million Euros) accrued in 2001.

In October 2012, Singer managed the withholding of the vessel Libertad, training ship of the Argentinian army, by the Ghanan government, as an asset which could be seized for the payment of a debt, but finally it was liberated and it returned to Buenos Aires last week.

Source: Cinco Días