30 April 2015 – Expansión
The real estate company Reyal Urbis has responded to the request made by the judge and several of its creditors to amend its proposed agreement, which it wants to use so overcome the creditors’ bankruptcy that it has been immersed in since February 2013. The company recorded further losses of €47.4 million between January and March, an increase of 61%.
Original story: Expansión
Translation: Carmel Drake
9 April 2015 – Expansión
The real estate sector is still waiting to see whether Mariano Rajoy’s Government will extend (the term of) Royal Decree Law 10/2008. The legislation has been in place for seven years now, even though it was initially designed to last for only two. The law allows companies to avoid being wound up when the losses they incur result from real estate, real estate investments or stocks.
The Royal Decree was passed to limit the impact of the decrease in the value of real estate assets, which generated millions of euros of losses for many of the key companies in the sector. Therefore, the Government granted them two years to rebalance their accounts and maintain their production activity.
Year after year, first the Government of José Luis Rodríguez Zapatero and then that of Mariano Rajoy, has extended this law. Had it had not done so, several large companies, such as Reyal Urbis and Quabit, would have gone under by now.
Even if the law is not extended (this time around), neither of those two listed real estate companies will be effected (given that the first has already filed for bankruptcy and the second has increased its capital), but many others in the sector will be.
Companies and experts in the real estate sector had assumed that a decision would be announced at the most recent Council of Ministers in March. However, given that no announcement has yet been made, many now believe that it will not be extended.
Last year, the term of the Royal Decree 10/2008 was extended at the beginning of March. Then, CiU used an amendment to a piece of legislation that did not have any clear link to the real estate sector (the bill for the privatisation of the state insurance company Cesce) to make the request for another extension.
The business fabric
Sources close to the Government say that a final decision has not yet been taken. “Activity is now returning to the real estate sector; as such it would be incomprehensible that companies that have survived an unprecedented crisis have to file for liquidation now, just because the Royal Decree Law 10/2008 is not extended for another year. The destruction of the business fabric that took so many years to establish, as well as the job losses, make us think that an extension of the term of the Royal Decree is justified”, says Juan Antonio Gómez Pintado, Chairman of the association of real estate companies in Madrid (Asprima).
Companies in the sector are not the only ones interested in extending the term of the Royal Decree. Wind and photovoltaic companies, affected by cuts in premiums for those types of energy, have also made use of this legislation to avoid being wound up.
Original story: Expansión (by R. Ruiz)
Translation: Carmel Drake
6 April 2015 – Expansión
Over the last two years, the bank has invested €4,400 million in its subsidiary, which owns properties that have been foreclosed (by CaixaBank) following the non-payment of debt.
The property sector is still taking its toll on CaixaBank. In 2014, the entity had to inject another €1,900 million in BuildingCenter, the company in which the bank places all of the real estate assets that it forecloses in exchange for (the cancelation of) debt.
This new contribution of funds responds to the need for BuildingCenter to restore the equity balance of its balance sheet, due to the losses generated by these assets, which are managed and marketed by ServiHabitat, the real estate platform owned by TPG (51%) and CaixaBank (49%). BuildingCenter generated a loss of €1,280 million in 2014.
Typically, the bank chaired by Isidro Fainé, rebalances BuildingCenter’s (balance sheet) through capital increases. However, this time, the €1,900 million has been injected into the Catalan group’s bad bank in the form of a “non-refundable monetary contribution from the sole shareholder”. This means that the money forms part of its restricted reserve, and therefore, constitutes the own funds of the company, just like its capital. In 2013, CaixaBank also used this formula to transfer another €750 million to the real estate company.
The BuildingCenter’s last capital increase was also conducted in 2013, for €1,250 million, plus an issue premium of €500 million. Therefore, if we sum the three contributions, CaixaBank has invested €4,400 million in total in BuildingCenter in just two years.
In parallel, over the last two years, the bank has made provisions for the impairment (of its investment in) BuildingCenter amounting to €2,233 million. In 2013, it made provisions amounting to €1,101 million and last year, it made provisions for a further €1,132 million. The NPL ratio of the real estate company is 58.7%.
Financing
According to CaixaBank’s annual report, the financing granted by the bank to its subsidiary BuildingCenter, amounted to €9,268 million at 31 December 2014, i.e. 16% more (than a year earlier).
In total, the net book value of the BuildingCenter’s real estate assets amounted to €6,515 million, i.e. 8% more than in 2013. 73% of that figure related to properties that the company had foreclosed from construction companies and property developers in exchange for the non-payment of debt.
Homes resulting from the foreclosure of individual mortgages accounted for 15% of the portfolio, amounting to €1,000 million.
In 2014, CaixaBank (successfully) marketed 23,400 properties, including sales and rentals, for €2,512 million, i.e. 15% more (than a year earlier). The occupancy rate of the rental portfolio amounts to 87%.
Finally, last year, BuildingCenter took over General de Inversiones Tormes and the company VIP Gestión de Inmuebles, which it inherited from Banco de Valencia.
Original story: Expansión (by S. Saborit)
Translation: Carmel Drake
27 March 2015 – Expansión
Negotiations / The real estate company, which has a debt of €4,000 million, has appealed against the judge’s request to change and clarify certain points of its proposed agreement.
The negotiations to enable Reyal Urbis to emerge from bankruptcy have taken an unexpected turn. The real estate company, chaired by its largest shareholder Rafael Santamaría, has decided to appeal against the request from the judge in charge of the bankruptcy process to modify various points of its proposed agreement.
The decision by the real estate company to postpone the changes requested by the judge has come as a surprise, given the very difficult situation it finds itself in. Reyal Urbis has debt amounting to €4,435 million, whilst its assets are valued at €1,345 million. Moreover, it has an equity deficit of more than €3,000 million.
In 2014, the company recorded a loss of more than €694 million. It has not made a profit for five years, due to the depreciation of its real estate assets and declining sales.
On 6 March 2015, the judge Franciso Javier Vaquer, head of the Commercial Court No. 6 in Madrid, asked the company to remedy deficiencies in the feasibility plan that it had presented a few days earlier. The proposal by Reyal Urbis included a discount of 90% for those creditors with mortgage guarantees from bilateral loans. In the case of creditors of syndicated loans, which included entities such as Santander, Sareb and Barclays, the real estate company proposes two options: one of them involves a discount of 90% and the payment of the balance using certain assets (Reyal reserved some of its portfolio, worth €260 million, for itself).
The second alternative is a discount of between 88% and 93% and a six year wait for the payment of the remainder, with a grace period of four years. In both cases, the discount to be applied “far exceeds the legal limits”, something which is not justified in the feasibility plan presented by Reyal Urbis, according to the judge.
Moreover, the judge also considers that in its business plan the real estate company does not explain how it is going to obtain the funds to pay the remainder of the debt.
These high discount rates would not apply to the Tax Authorities, another one of Reyal Urbis’s creditors, with a liability of €400 million, which the judge asks them to justify “if the bankrupt entity is willing to grant the AEAT (State Tax Administration Agency or Agencia Estatal de Administración Tributaria) unique, special or beneficial treatment that differs from that offered to other creditors of equal ranking (…), then Reyal should explain all of the details behind the unique, specific or preferential treatment or treat AEAT in the same way as it would treat creditors of similar loans with no option to refer to a subsequent agreement”.
The “Drag effect”
In its proposal, Reyal Urbis clings onto the bankruptcy reform law, approved last year, to obtain its exit from bankruptcy, even without the support of all of its creditors. “The company interprets that Article 121.4 of the Insolvency Act allows a vote in favour of the proposal by 75% of the creditors (by grouped liabilities) of the aforementioned syndicated loan to “drag” the remaining 25%”, they say at the company. This is something the judge rejects, since the waiver of the rights to receive (funds) should be made expressly.
The appeal raised against the judge’s request has surprised the financial creditors, which had expressed their willingness to accept significant discounts in exchange for holding onto the assets that were already provisionally awarded through the drawing of lots, and which featured as collateral in the refinancing agreements signed in previous years.
The main creditors believe that these changes requested are necessary, before they will consider submitting the possibility of accepting this plan or not to their respective boards of directors. If it fails to gain the support of the majority of the debt holders, Reyal Urbis will have to follow in the steps of its counterpart Martinsa Fadesa, which is in the middle of liquidation.
Nevertheless, the creditors have not completely given up on the process and believe that the appeal may afford Reyal extra time to present a proposal by consensus.
Original story: Expansión (by R. Ruiz and S. Arancibia)
Translation: Carmel Drake
10 March 2015 – El Economista
The real estate sector continues to be a major problem for financial institutions despite the economic recovery. The largest 6 banks lost another €3,027 million last year from their main property development companies, which together hold the bulk of the foreclosed assets, due to unpaid loans.
Following the results reported in 2014, Banco Santander, BBVA, CaixaBank, Sabadell, Popular and Bankinter have now suffered losses of more than €15,300 million in the last four years from their real estate arms.
Nevertheless, the rate of loss is shrinking due to the stabilisation of (house) prices, which have decreased by 40% on average, and the increased sales of homes and, even land. This is in addition to the provisions that have already been made, primarily in 2012, when the Government forced financial institutions to increase their coverage ratios substantially in the face of doubts in the market over the real status of the system’s balance sheet.
Thus, the deficit reported by these companies decreased by 36% with respect to 2013 and by 45% with respect to 2012, but it continues to be 43% higher than in 2011.
The real estate arm of CaixaBank, BuildingCenter, recorded the greatest losses in 2014, according to data published by the entities. Specifically, it generated a loss of €1,280 million. The Catalan group had to clean up its balance sheet by €1,900 million in the middle of last year, through a capital injection to adjust its balance sheet. Its losses have amounted to €3,000 million in the last two years.
Diminishing impact
Indeed, the Catalan group is the least optimistic about the property situation in our country. At the end of January, its CEO, Gonzalo Gortázar, predicted that the accounts of the real estate company “would continue to be significantly impacted” this year and next. Although, he did point out that the impact should diminish.
Canvives, owned by Popular, was the property developer that recorded the smallest losses: €52 million. The company, which used to be owned by Pastor, was merged into the group chaired by Ángel Ron. The deficit of this subsidiary has decreased by 91% in two years after the clean up. Popular holds another large real estate company in its portfolio, Aliseda, which generated additional losses of €146 million last year.
According to its management tem, Popular managed to sell property at a price slightly higher than its book value, after applying provisions, and it doubled its turnover (from this activity), to generate €1,500 million.
The bank, chaired by Ángel Ron, expects to increase the sale of property by 33% this year, as it gradually reduces this type of asset. It was the last entity to launch an aggressive price policy and it is intensifying (its efforts) to reduce the volume of homes and land it holds.
Santander’s property developer generated the some of the smallest losses last year. Just €119 million. This company’s deficit over the last four years amounts to €1,788 million in total.
Santander, like Popular and CaixaBank, is supported by funds, which strengthen the sale of their properties. The three banks have got rid of the majority of the capital (they held) in the platforms they use to manage this type of asset, with the objective of outsourcing the service and achieving gains with which to shore up their capital resources.
The strategy followed by BBVA, Sabadell and Bankinter is somewhat different; they have retained the overall management of their foreclosed properties, although in the case of the first two, the option of finding a specialist industrial partner has not been ruled out. Under no circumstances do these entities expect to partner up with any funds.
The volume of foreclosed assets increases
Although the volume of sales has accelerated, the balance of foreclosed assets is continuing to increase; although if we exclude the stakes held in property-related companies, this balance decreases for the first time since the crisis. In this sense, last year, Santander and BBVA succeeded in reducing the volume of homes and land in their portfolios. The former reduced its balance by 1.8%, to €7,851 million gross (excluding provisions), whilst the latter decreased it by 5%, to reach €13,016 million.
The six listed banks, excluding Bankia, which transferred the majority of its properties to Sareb during the financial bailout, together held foreclosed assets amounting to €70,000 million at the end of 2014, including the stakes they owned in property development companies. This means that the balance had increased by 9% with respect to 2013.
The forecasts made by the entities themselves indicate that all of this stock will have been liquidated within five or six years. Santander, for example, expects to decrease its balance by 20% each year, which means that it may have got rid of the entire volume of homes and land in its portfolio within five years. However, this will all depend on the economic conditions in our country and the recovery of the property sector, which is starting to see the light at the end of the tunnel.
Original story: El Economista (by Fernando Tadeo)
Translation: Carmel Drake
10 February 2015 – El Economista
In 2014, Santander’s real estate stock decreased by 1.8% and BBVA’s dropped by almost 5%.
Banco Santander and BBVA are beginning to shed some real estate weight. For the first time, the economic recovery has allowed the two large banks to reduce their portfolios of homes and land foreclosed from developers and individuals for the non-payment of debt.
The two largest financial groups in the country have managed to halt the entry of property onto their balance sheets and accelerate its exit, thanks to a boost in sales. Thus, the Cantabrian group has decreased the gross value of its real estate portfolio by 1.8% to €7,851 million. After accounting for provisions, which reflect current market prices, this value decreases to just over €3,500 million.
Meanwhile, the bank chaired by Francisco González has reduced its stock by 4.9% to €13,016 million. After applying the appropriate provisions, the value of its real estate portfolio amounts to €6,131 million.
Boost in sales
This decline in the assets of the two main entities has occurred at a time of stability in terms of prices, which seem to have bottomed out having decreased by 40% in the last seven years. This, coupled with the high provisions, which cover between 53% and 55% of the gross value of the assets, has allowed both entities to sell assets, above all, during the second half of last year, without incurring any additional losses.
The increase in the sale of properties and, even some land, also coincides with the war in the mortgage segment that was unleashed in 2014. The entities have launched campaigns to offer loans at the most attractive prices to enable borrowers to purchase homes, including from their own portfolios.
Different strategy
Santander and BBVA’s real estate strategies are different, but both are now starting to bear fruit, after years of burgeoning portfolios of foreclosed assets as developers and families found it impossible to pay their debts.
Santander, like many other Spanish banks, has transferred the management of these assets to Apollo. The Cantabrian group sold 85% of its real estate platform Altamira to the fund, and whereby achieved significant gains with which to strengthen its capital and transfer the management of the entire stock to a specialist company, which has also just been awarded the management of a portfolio by the bad bank or Sareb for the next few years.
BBVA’s plan is different. The entity, headquartered in Bilbao, has preferred to keep the management of all of its unproductive assets in-house, through its subsidiary Anida.
Although prices have now stabilised and the banks are now making some money on the majority of sales transactions after accounting for provisions, the real estate arms of both banks are still weighing down on their income statements. These divisions include not only foreclosed homes, but also loans granted to companies relating to the real estate sector. In the case of Santander, the real estate department recorded losses of almost €600 million in 2014, 8.2% less than in 2013. BBVA recorded losses of almost €800 million.
Both banks hope that these divisions will begin to generate some kind of positive yield within two years and they expect their respective stock balances to have disappeared or been reduced to an absolute minimum within five years. The decreases were more pronounced (in the double digits) in the case of loans to developers than properties due to the divestments performed in the wholesale market.
Original story: El Economista (by F. Tadeo)
Translation: Carmel Drake
9 February 2015 – El Mundo
The Ibex-listed financial institutions have doubtful balances and a portfolio of foreclosed homes amounting to €120,000 million.
During 2014, they sold more than 20,000 properties for a combined value of €11,700 million.
It will take Spanish banks two more years to “digest” the property binge that they enjoyed during the years of economic boom. The annual accounts of the listed entities – with the exception of Bankia, which has not yet published its results – show that, despite the recovery in the banking sector, the real estate sector continues to be a heavy burden – it generated losses of more than €3,600 million in 2014.
The indicators show signs of optimism, including the decrease in the default rate – which currently stands at 12.75% for the sector as a whole – and the decrease in doubtful assets by more than €20,000 million over the last year. However, the banks recognise that their exposure to the real estate sector will continue to be a hindrance throughout 2015 and 2016 at least, two years during which the market is expected to absorb most of the foreclosed assets (amounting to €60,000 million) accumulated by Santander, BBVA, Caixabank, Bankia, Sabadell, Popular and Bankinter.
The gross credit exposure to developers of these seven entities (all of which are listed on the Ibex) amounted to €103,000 million at the end of last year, although it should be noted that the figure for Bankia relates to the third quarter 2014.
From this quantity, just over €61,000 million is classified as doubtful (i.e. a non-payment of some kind has been recocorded) or sub-standard (credits that are currently being paid, but which are expected to go into arrears). According to the entities, this figure is lower than last year, due to the refinancings, recoveries and maturities that have taken place over the last year. But it is still a volume that requires a significant provision balance to cover the potential losses. Overall, the seven banks analysed recorded a total coverage against doubtful debts of €38,900 million at the end of 2014.
Last year was the first year in which the entities significantly reduced their provision coverage, following five years of crisis. “The results from the real estate sector clearly show the less negative impact that has resulted from the clean up of loans to developers and foreclosed real estate assets” says BBVA, a bank that recorded losses of €876 million in this area. Despite the size of the figure, it is 30% smaller than the €1,252 million losses recorded by the entity a year earlier.
Caixabank is the entity whose results have been hardest hit by the activity in the real estate sector. On 30 January, its CEO, Gonzalo Cortázar, predicted that the housing burden would have an impact on its financial results in 2015 and 2016 that this impact would “still be significant, although the digestion will be prolonged on a decreasing scale.
Santander has managed to reduce its loans to developers by 34% in the last year and has increased its coverage to 54%, but its annual results are still negative, with the entity led by Ana Botín recording a loss of €583 million.
Sabadell’s losses were even greater – €999 million and it has a gross exposure to the real estate market of €26,958 million, the highest in the sector, taking into account the foreclosed assets of CAM.
Fewer discounts
Bankia, Bankinter and Popular do not publish results about their respective real estate businesses. Popular is the bank that holds the greatest number of problem assets (doubtful and foreclosed assets) in proportion to the size of its balance sheet. It has loans amounting to €13,061 million in this category, with a coverage level of 44%. But the figures that really jump out are the volume of foreclosed homes, developments and land (€14,169 million) held by the entity, which closed the year with sales of €1,503 million.
Last year, some entities sold some of their house sale divisions. Altogether, these seven entities offloaded more than 20,000 units for a total value of €11,700 million. Sabadell was the most active bank in terms of house sales, generating €2,744 million. Various sources agree that 2014 was characterised by a reduction in the discounts applied, which in some cases, meant that the income received was actually higher than the recorded book value.
Some entities, such as BBVA and Sabadell, have an Asset Protection Scheme (Esquema de Protección de Activos or EPA) in place, following their acquisitions of Unnim and CAM, respectively. This insurance allows them to cover any additional deteriorations on their balance sheets over the next few years, through the Frob. Sabadell has recognised that it may start to use this financial cushion this year.
With the exception of Bankia, none of these companies has transferred assets to Sareb, the bad bank that absorbed loans to developers, and foreclosed homes and land, from entities that received public aid in the rescue of 2012.
Original story: El Mundo (by Javier G. Gallego)
Translation: Carmel Drake
26 January 2015 – Expansión
Bankia has cleaned up its real estate subsidiary with a fund contribution and a tax credit. The application of deductions for deferred taxes allowed Bankia Habitat to emerge in 2013 (the latest data published by the entity) from the losses it had recorded in previous years.
The real estate company recorded losses before tax of €86 million, which were offset by the application of deferred taxes amounting to €383 million, taking the net profit of the company to €297 million, compared with a loss of €1,347 million in 2012. This result offset losses recorded in previous years. Furthermore, Bankia Habitat reversed certain asset impairment losses amounting to €68 million, to take the total cumulative profit for the year to €350 million.
In parallel, Bankia restored the equity balance of its subsidiary by completing two debt-relief transactions, whereby injecting €700 million and €606 million of its own funds into the real estate subsidiary. This inflow of €1,306 million allowed the group to rebalance the company’s equity. Its own funds amounted to €995 million at the end of 2013, compared with a negative figure of €607 million a year earlier.
Bankia Habitat has accounted for a credit amounting to €596 million, demandable by the Public Administration, for deferred tax assets arising from losses, according to its audit report for 2013. Bankia Habitat’s total deductions pending offset amount to €221 million at the individual level and €2,451 million at the consolidated level.
Valuations
These amounts have been generated since 2004, although the bulk was recorded between 2008 and 2012. The timetable for realising the outstanding deductions finishes in 2013 and is conditional upon the company generating profits.
Bankia Habitat was the focus of many of Bank’s solvency problems. The solution began with the transfer of some of its assets to Sareb at the end of 2012, for a consideration of €1,250 million. The bank signed an agreement with Haya to manage the marketing of the Group’s properties.
Original story: Expansión (by E. del Pozo)
Translation: Carmel Drake
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