Tag: Project Sunrise

Santander Engages Morgan Stanley To Execute Express Sale Of Popular’s Property

29 June 2017 – Voz Pópuli

Banco Santander does not want to waste any time with its sale of Popular’s properties. The entity chaired by Ana Botín has engaged Morgan Stanley to execute an express plan to get rid of the problem assets that it has inherited from its subsidiary, according to financial sources consulted by Vozpópuli. Sources at Santander declined to comment.

According to the same sources, the mandate does not outline the sale of specific assets, but rather it defines which would be the best solution: the rapid transfer of assets in large batches; the reactivation of Ángel Ron’s old idea of creating a bad bank (Project Sunrise); the transfer of assets to Testa and Metrovacesa; or taking things more slowly to benefit from the economic recovery.

It is about putting the real estate balance sheet in order and defining the best path for each asset type. But Morgan Stanley’s work, which is being led by its CEO, Juan González Pedrol, will not focus only on resolving Popular’s existing property puzzle. It is also meeting investors to get them to analyse assets and prepare bids.

The fact that Santander has already committed to a mandate of this calibre shows that it is not afraid of reducing the volume of problem assets, which amount to almost €50,000 million after the merger. That is something that investors would penalise in the event that those assets stagnated on the bank’s balance sheet. In that context, a few weeks ago, Botín committed to cutting Popular’s real estate exposure in half by 2019.

The person responsible for this task at Santander is Javier García Carranza, Deputy General Manager of the group and Head of Restructuring, Real Estate, Investments and Venture Capital. García Carranza joined Santander from Morgan Stanley, where he used to be responsible for Real Estate in London.

The mandate given to his former entity is one of the most sought-after in the investment banking sector, alongside the capital increase, from which Morgan Stanley has been ruled out. Names still in the running for that €7,000 million-operation include Citigroup and UBS, as global coordinators, and Credit Suisse, Deutsche Bank, Barclays, BBVA, HSBC and CaixaBank, according to Bloomberg (…).

Saracho’s plan suspended

One of the first measures introduced by Santander after it took control of Popular was to suspend the operations that Saracho’s team had set in motion. The former management team had at least two portfolios on the market (…).

Sources in the market expect Santander and Morgan Stanley to bring a large portfolio onto the market before the end of the year, given that there is a lot of demand from large international funds. The clean-up conducted during the merger, of almost €8,000 million, means that the group is ready for these operations.

Following the merger, Santander has accumulated problem assets amounting to €48,417 million, according to the latest official figures. Of those, €36,800 million come from Popular, with a coverage after extraordinary provisions of 66%, and €11,600 million from Santander, which before the merger held a coverage of 57%. That means that the new Santander-Popular entity has more assets than Sareb.

In addition, the group holds other investments, such as its stakes in Metrovacesa, Sareb and Testa Residencial, which, in the case of Santander alone, amount to €5,300 million.

Original story: Voz Pópuli (by Jorge Zuloaga)

Translation: Carmel Drake

Saracho Calls Time On Ron’s Plans For Popular’s Bad Bank

15 February 2017 – El Economista

Project Sunrise, designed by Ángel Ron’s team at Popular to extract €6,000 million worth of real estate assets from the entity’s balance sheet, has run aground. With less than a week to go before Emilio Saracho (pictured above) takes over the presidency, the former global vice-president of JP Morgan has announced that he is not convinced by the plan and has put a stop to it, according to sources.

The vehicle had been approved by the Bank of Spain, but had not yet convinced the Spanish National Securities and Exchange Commission (CNMV) or the European Central Bank (ECB). Their aversion to the plan seems to have led Saracho to reject it. Although the star plan to clean up the balance sheet had received support from the bank’s Board of Directors, the difficulties involved in deconsolidating the portfolio of non-performing assets and the potential risks that could result for the future owners of the vehicle, are hampering its execution. (…).

Moreover, the real estate company has also been impeded by a more limited appetite than it had hoped for from the investment banks, whose involvement is key. The plan is for the company to be financed through senior bonds, subscribed to by those investors and subordinated debt, which will constitute the remuneration that the bank will receive from the company in the future. At the time, the entity confirmed that the interest expressed by JP Morgan, Morgan Stanley and Deutsche Bank was sufficient to crystallise the project. But, in order to deconsolidate the real estate company, the senior bond tranche must represent a majority and a low uptake from the investment banks is likely to increase the cost of that bond issue.

Ron acknowledged in his public farewell, alongside the CEO, Pedro Larena, that Project Sunrise has suffered certain changes from its original scope, but that Saracho was aware of these, along with other measures.

During the last quarter of 2016, the entity recognised an additional €3,000 million in non-performing assets and allocated €5,692 million to clean up efforts, rather than €4,700 million, the amount it had planned to set aside when it carried out its €2,500 million capital increase last summer. The effort reflects that recognition of a greater volume of toxic assets and also served to cover the costs of the adjustments to branches and staff, the impact of the floor clauses and the unexpected losses in TargoBank (…). Nevertheless, it was insufficient to reach the goal in terms of doubtful debt coverage and provisions for properties.

Shock therapy

Saracho was reportedly aware of all of this. Nevertheless, the banker will start work without a pre-determined road map (…) on the understanding that the bank needs to define a comprehensive shock plan.

Saracho will conduct a detailed analysis to assess the entity’s viability and to define its new strategy. Ron was committed to making the bank smaller, focusing on its profitable business niche of SMEs in Spain and spinning off its subsidiaries in the USA, Mexico and Portugal, where the interest aroused will ensure a positive return on investment – market sources speculate that the private bank, and even the insurance business, are included in this equation.

The sources consulted also say that these changes, if they are undertaken, would help restore solvency, but would not be sufficient to ensure the bank’s future. After a detailed analysis of the situation, Saracho will have to choose the best option for his shareholders from a handful of scenarios.

If he thinks the entity is viable, it is unlikely that he will undertake another capital increase (…), but may include transferring assets to Socimis or integrating them into real estate companies in which the bank holds a stake.

In the worst case scenario, the new manager faces the option of breaking up the group and selling it off in parts or by asset. And whilst a sale to a competitor or a merger is not unthinkable, a priori, it appears to be the least attractive option for shareholders, given the lack of interest in the sector.

Original story: El Economista (by Eva Contreras and Lourdes Miyar)

Translation: Carmel Drake

Popular’s Bad Bank Will Not Have To Publish Historical Accounts

24 October 2016 – Expansión

The bank will adopt the exemption granted by the regulations governing stock market IPOs and as such will not have to publish its accounts for the last three years (given that such accounts do not exist). Nevertheless, the new company must show that it has a viable long term future.

The regulations governing stock market IPOs require companies wishing to list for the first time to present audited accounts for the last three years in their admissions prospectus. However, the real estate arm of Popular is unable to fulfil this requirement because it does not exist yet. Moreover, the aim is that when it is constituted, which should happen during the first few months of 2017 at the latest, its assets will be removed from the bank’s balance sheet (…).

Despite the lack of accounts for the previous three years, it will be possible for the entity to debut on the stock market because the regulations themselves state that IPOs may be authorised without fulfilling that requirement.

Precedents

In the history of Spain’s stock markets, numerous companies have made use of this exemption, including the debut on the stock market of Bankia and Banca Cívica in the summer of 2011, and the more recently and plentiful Socimi debuts, which have chosen to list on the stock market without providing accounts because they did not exist at the time. (…).

Independence

From the perspective of the banking supervisor, it will be essential for the real estate company to make clear that it is not related to the bank in any way, for it to be able to authorise the deconsolidation from Popular Group’s balance sheet. To this end, the company’s liabilities must unequivocally reflect the independence of the two companies.

The liabilities shall comprise three major captions: capital, subordinated debt and other debt that the real estate company needs to balance the company’s assets.

The capital, whose amount is still to be determined, shall be paid in its entirety by Popular, which will distribute it immediately to its shareholders.

The subordinated debt will be acquired by Popular. Its amount may not be too high in order to ensure that it may not be concluded, under any circumstances, that the new company depends or may depend on Banco Popular. Finally, the bulk of the liabilities will comprise debt, which will be sold to institutional investors. The volume and price of that debt has not been determined yet.

On the asset side, properties with a book value of €6,000 million will be transferred, but they will be pass onto to the real estate company for a value of around €4,000 million.

The difference represents the provisions that Popular has already recognised or will recognise to reduce the value of the transfer to the figure that ends up being agreed upon. (…).

Once all of these figures have been reconciled, the company will still need to demonstrate that it is solvent by itself and that, therefore, the revenues forecast in the business plan will be sufficient for the real estate company to reduce its debt and generate positive results, which will allow it, in turn, to remunerate its shareholders through the payment of dividends. (…).

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

80% Of Popular’s Bad Bank Will Comprise Finished Homes

24 October 2016 – El Confidencial

The first details are emerging about Project Sunrise, the bad bank in which Banco Popular is planning to segregate properties amounting to €5,800 million (gross) (€4,000 million net). Approximately 80% of its assets will be finished homes, which the entity hopes will reduce the risk associated with the project and facilitate sales of the vehicle, according to financial sources close to the project. As a result, the entity chaired by Ángel Ron hopes to reach “break even” in its third year of life, in other words, in 2019, and to generate profits thereafter.

According to the plans for the aforementioned bad bank, more than €3,000 million of Sunrise’s balance sheet will correspond to finished homes, whereas only around €400 million will relate to land – the second most important asset. In third place, the bad bank will hold developments in progress with a gross value of €300 million and finally, Popular will transfer homes for rent amounting to another €200 million. It total, more than 40,000 individual assets will be transferred to the new entity.

The bank is looking to increase the quality of the assets that it transfers to this vehicle and whereby achieve a dual objective: on the one hand, improve its prospects for sales and revenues, given that finished homes have more appeal in the market (when compared to land or developments in progress, which require additional investment to be completed); on the other hand, allow lower provisions to be recognised upon transfer, given that the prices at which the assets were awarded to the bank do not need to be reduced by as much in these cases. The average provisioning level of Sunrise’s assets will amount to 31%.

Profits from year 3 onwards

And it is precisely thanks to this greater ease to sell the bad bank’s assets that Popular expects that the new vehicle will emerge from losses during its third year of operation, in other words, in 2019 (it plans to list on the stock market in 2017). Sunrise’s business plan forecasts profits of around €50 million per year for the next two years, according to sources consulted.

To this end, the bank chaired by Ron is relying on a strong performance in the Spanish real estate market, based on good economic forecasts, low interest rates and improvements in other indicators, which are already being seen in some cases, such as the number of mortgages, the volume of house transactions and the prices of operations. According to their calculations, house prices are still undervalued and as a result, will continue to rise over the next few years.

The bad bank, vital for achieving its objectives

The segregation of the bad bank is one of the fundamental milestones in the restructuring plan that Popular presented to justify its €2,500 million capital increase in June, given that, by removing almost €6,000 million (gross) in real estate assets from Popular’s balance sheet, the entity will free up capital and strengthen its solvency levels. Nevertheless, it has faced difficulties due to the lack of buyers interested in the vehicle, and so it has decided to list the vehicle on the stock market by gifting its share capital to the banks current shareholders in the form of a dividend. (…).

Original story: El Confidencial (by E. Segovia and J. A. Navas)

Translation: Carmel Drake

The Banks Want To Regain Control Of Their RE Servicers

14 October 2016 – El Confidencial

Just three years after selling the management of their real estate companies to large international funds, Spain’s large banks are engaged in a widespread movement to try to regain control of those companies once again and as such, achieve absolute freedom to sell their properties by other means.

The reason? There are basically two motives. On the one hand, the banks consider that more profitable options exist to allow them to divest property without penalising their capital; and on the other hand, they want to save the management commissions that they are having to pay the funds for taking over the reins of these real estate companies, known in the jargon of the sector as “servicers”, and whose fees rise in line with the volume of assets managed.

Looking back…in December 2012, Banesto agreed the sale of Aktua to Centerbridge; in September 2013, Caixabank sold 51% of Servihabitat to TPG and Bankia sold 100% of its real estate company to Cerberus; two months later, Santander reached an agreement with Apollo to sell 85% of Altamira and Popular sold Värde and Kennedy Wilson 51% of Aliseda. Sabadell and BBVA, the other two large Spanish banks, chose to continue to manage their assets internally; the first through Solvia and the second through Anida.

Nevertheless, the majority of these marriages of convenience have been suffering from serious tensions for a while now; and these differences of opinion are causing the banks to begin to try to regain control of their real estate companies. According to El Confidencial, Popular is trying to reach an agreement with Värde to repurchase Aliseda and transfer its assets to the so-called “Proyect Sunrise”, a kind of bad bank through which it seeks to divest up to €6,000 million.

Santander has also been engaged in negotiations for severals months with Apollo, from which it already snatched a series of assets from the former real estate fund Banif to transfer them to Metrovacesa, the real estate company that has just finished merging its properties (not its land) with Merlin. In fact, that operation is an example of the type of project that the sector is now committed to, and which has caused all kinds of rumours to circulate about potential alliances.

For example, the entity chaired by Ana Patricia Botín and BBVA have found another way of getting rid of almost 7,000 homes (between the two of them) in the form of Testa, the rental housing subsidiary owned by Merlin. The two banks are deconsolidating all of the real estate assets that they are transferring to both Merlin and Testa, because they hold minority stakes, and this allows them to generate liquidity because the former is a listed company and the latter will be listed on the MAB from next year and on the main stock exchange within five years.

In the case of Servihabitat, Caixabank will be able to start to seriously consider a movement of this kind from next year, given that for the first four years (of the ten-year duration of their alliance), TPG has a special grace period, according to sources familiar with the agreement.

The case of Bankia is special, because the bulk of its assets were transferred to Sareb and it accounts for the real turnover of Haya Real Estate, the “servicer” created by Cerberus, given that the company was created with €12,200 million of the entity’s real estate assets and with €36,000 million from Sareb. Moreover, the fund acquired the companies Reser Subastas and Gesnova from Bankia.

Last year, Gesnova lost the entire portfolio of contracts that it held with the former real estate fund of Bankia, which was sold to Goldman Sachs, a blow that was compounded by Sareb’s decision to award Solvia the management of the portfolio of foreclosed assets that until then had been managed by Gesnova. In total, Haya saw a quarter of its revenues go up in smoke.

“All of the banks are looking at how to regain control of their servicers because they are realising that better alternatives exist, above all following the Metrovacesa operation, and in light of the fact that the real estate market is recovering”, said one source. “Everyone is talking to everyone else, lots of potential alternatives are being presented, which may or may not materialise, but the reality is that there is going to be a lot of movement in the world of the servicers over the next two years” said one executive from the sector.

Meanwhile, the funds are willing to withdraw from their investments provided the entities are willing to stump up the cash. In the case of Apollo, the figure is likely to exceed €1,000 million and in the case of Värde €800 million, according to sources. (…).

Original story: El Confidencial (by R. Ugalde)

Translation: Carmel Drake