Tag: provisions

Sareb Will Have To Capitalize More Debt To Avoid Bankruptcy

5 October 2015 – Expansión

On Friday, the Bank of Spain published an accounting circular that Sareb will be obliged to comply with this year. The company responsible for managing the real estate assets inherited from the banks that received public aid, acknowledged immediately that it will have to recognise new provisions. This means that the company will record losses once again. Furthermore, it is very likely that, as a result, Sareb will have to covert some of its subordinated debt into capital to prevent it from being wound up.

Sareb is coming to the end of its third year and is not scheduled to be wound up until it is 15 years old. However, during its first two years, it recorded total losses of more than €800 million, which reduced its initial capital from €1,200 million to just less than €400 million.

Now, the accounting circular, drafted by the Bank of Spain, is requiring that Sareb value all of its asset this year and next. This will involve a considerable effort by the company, which clearly separates out all of its assets. Sareb’s balance sheet comprises 100,000 own properties, 400,000 collaterals as guarantees and 70,000 loans.

The cost of (re)valuing the whole portfolio is estimated at €25 million until 2017, which would clearly have an impact on total costs.

The properties owned by Sareb should not represent a significant problem because the company is familiar with them, and has pretty good idea of their approximate market values. They even think that overall, their owned properties could generate some gains, although any such gains would not appear on the balance sheet.

The problem exists when it comes to valuing the loans and collateral guarantees that support them, because Sareb does not control or know those assets in as much detail. The general view is that valuing those assets at current prices will result in significant losses, which would be reflected directly in the income statement given that provisions would be required.

For this reason, and based on information from the experts at the company, a statement was made to the Board of Directors, formed by representatives of the Frob, which owns 45% of Sareb, and by representatives of the private (owner) banks, which own the remaining 55% majority stake, that it is certain that Sareb will register losses once again this year and may therefore need to convert some of its subordinated debt (subscribed by the shareholders in the same proportion to their capital stakes) into capital to rebuild the financial position of the company.

Sareb has subordinated debt amounting to €3,600 million, a much higher figure than it would have to convert (into capital) to solve the problem posed by the circular, without having to resort to a possible capital increase.

Although officially, the heads of Sareb have not communicated a specific figure to the Board in terms of the size of the losses for the year, sources at the bad bank are talking about provisions of no less than €500 million.

This year, Sareb is selling fewer properties to individuals than it did last year, for various reasons, including because the management of certain assets has been transferred from the ceding banks to specialist companies, which won the tender held earlier in the year.

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Project Big Bang: Bankia Selects Contenders For Final Phase

26 June 2015 – Expansión

Bankia has launched the final phase of the sale of its remaining assets, worth €4,800 million. The process is expected to be completed in July. Blackstone, Apollo, Cerberus, Deutsche and Oaktree are amongst the investors that have been selected to proceed to the final round.

Bankia’s Project Big Bang is entering the final phase. In the last few days, the entity chaired by José Ignacio Goirigolzarri has announced the names of the investors that have passed the first round of non-binding offers. Around five funds have overcome the hurdle, including: Blackstone, Deutsche Bank, Apollo, Cerberus and Oaktree.

At stake is the largest sale of real estate assets – excluding debt operations – since the economic crisis hit: foreclosed residential assets, commercial premises and land worth €4,800 million.

From next week, the selected funds will deploy their real estate teams, and those of their consultants, to undertake a more accurate valuation of the reality. This is a highly complex project because Project Big Bang comprises 46,000 real estate assets scattered all over Spain. The funds and their advisors will select the broadest samples possible to try to obtain the most accurate valuation.

The investors are going to have to work against the clock, since the next date marked in the calendar is 31 July, when theoretically, they should submit their binding offers. According to financial sources, Bankia wants to settle the transaction as soon as possible so that it is not hampered by the political uncertainty that will only increase as the general election moves closer.

Dividing up the portfolio

Even so, the competitive auction is not expected to be finalised until after the summer, since following the receipt of the final offers, Bankia and its advisors – Credit Suisse and KPMG – will have to analyse them and prepare the documentation necessary to complete the sale.

According to various funds, all indications suggest that the Big Bang portfolio will end up being divided up, since Bankia and its advisors believe that they will maximise its value that way.

The foreclosed assets amounting to €4,800 million…are recorded on Bankia’s balance sheet at around €2,900 million. That would be the base price that Bankia would expect to receive, since a lower price would mean it would have to recognise new provisions.

The portfolio for sale mainly comprises residential assets (apartments, houses and garages) – 38,500 assets in total, covering 3.6 million square metres. Around 65% of the homes are located in Valencia, Cataluña and Madrid, and 5% of them are currently rented out. The residential portion of the portfolio is worth €3,300 million.

In addition, Bankia is selling 5,000 commercial assets (offices, shops, hotels, warehouses and industrial buildings) worth €1,100 million; and 2,600 plots of land – of which 65% may be developed – worth €400 million.

Of the candidates, it seems that Cerberus is the best positioned – it purchased Bankia Habitat – now Haya Real Estate – in 2013 and therefore, knows the portfolio first hand, according to financial sources.

Apollo is also expected to bid hard for the portfolio, through Altamira. After acquiring 85% of Santander’s real estate arm, Apollo has not yet acquired any significant asset portfolios to generate returns from its platform, although it was one of the asset managers chosen by Sareb to handle some of its portfolio.

Original story: Expansión (by Jorge Zuloaga)

Translation: Carmel Drake

CaixaBank Injects Another €1,900M Into BuildingCenter

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

Bankia And BMN Both Put NPL Portfolios Up For Sale

27 March 2015 – Expansión

Divestments / Bankia and BMN are seeking to replicate the transaction completed by Catalunya Banc in 2014 on a smaller scale. The market expects a “boom” in these sales in 2015.

After two years divesting shareholdings and bad debts, Bankia considers that the time has come for it to transfer some of the non-performing mortgages that it deems to be unrecoverable. The entity led by José Ignacio Goirigolzarri has put a portfolio amounting to €1,300 million up for sale, of which more than €900 million relate to unpaid mortgages. BMN has also put a similar package of loans up for sale, amounting to €160 million, of which €52 million relate to mortgages.

Investors have received these operations with a great deal of anticipation, because since Catalunya Banc transferred a portfolio of problem mortgages amounting to €6,500 million to Blackstone last summer, no other entity had decided to follow suit.

After the step taken by Bankia and BMN, a number of entities are expected to join the band wagon and put some of their real estate loans to individuals up for sale.

Change of course

Until now, the bank had been reluctant to sell mortgages to opportunistic funds for reputational risk reasons. To avoid this, Bankia and BMN have decided to exclude loans relating to subsidised and social housing (from their portfolios). Moreover, sources in the financial sector explain that overseas funds may offer more alternatives for non-performing loans than the banks, since they purchase the loans at a discount and so can offer discounts themselves. These investors, just like the banks, must comply with the Code of Good Practice developed by the (Ministry of) Economy in 2012.

The sale launched by Bankia forms part of Project Wind, advised by KPMG . In total, the portfolio contains overdue loans amounting to €1,300 million, which are split into three sub-portfolios: mortgages; loans to SMEs and real estate developers, secured by properties, worth €180 million; and unsecured loans amounting to €210 million.

The mortgage portfolio comprises 4,300 loans, with an average value of €214,000. Most of the mortgages were granted to purchase property in Cataluña (32%), Madrid (25%) and Valencia (18%). Furthermore, 83% of the 4,300 non-performing loans are involved in judicial proceedings.

These types of transactions allow banks to remove non-performing assets from their balance sheets, release provisions and devote new resources to new more profitable activities.

Foreign funds will monitor this transaction very closely, especially those who have purchased a real estate platform in recent years: Cerberus (Haya Real Estate), Apollo (Altamira), Centerbridge (Aktua), TPG (Servihabitat), Blackstone (Catalunya Caixa Inmobiliaria) and Värde Partners y Kennedy Wilson (Aliseda). Having purchased the real estate management platforms in 2013, these investors are now keen to nurture (feed) them with their own assets, and whereby obtain profitability from their investments.

In addition to this transaction, Bankia has two other deals in the pipeline: the sale of hotel loans – Project Castle – for which it has received non-binding offers of between €200 million and €300 million; and the transfer of syndicated and bilateral loans amounting to €500 million – Project Commander – which Deloitte is advising.

On a smaller scale

In the meantime, BMN has put a similar portfolio up for sale to that offered by Bankia as part of Project Wind. It amounts to €160 million, of which one third are unpaid mortgages. The sale of this portfolio, known as Project Pampa, is being managed by N+1. Almost all of the 300 mortgages included in this portfolio are secured by properties in Cataluña.

BMN hopes to close the sale of its portfolio by the end of May. In the case of Bankia, the transfer process may last until the middle of the year.

Original story: Expansión (by Jorge Zuloaga)

Translation: Carmel Drake

Top 6 Banks Lose €15,300M From Real Estate In 4 Years

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

The Top 7 Banks Reduce Their Exposure To Toxic RE Assets

3 March 2015 – El País

In 2014, loans to property developers and the overall volume of unpaid debt held by the top 7 banks decreased significantly, whereas the number of homes and plots of land they held increased.

Spain’s real estate bubble was largely a credit bubble. The excess amounts committed during the boom years subsequently gave way to a severe economic and financial crisis that forced Spain to ask its European partners to come to the rescue, to clean up the majority of its savings banks. The large banks were not immune from these excesses, but their higher levels of diversification, their capacity to attract private capital and their more professional management limited the damage (they suffered). All of this meant that even the healthy entities have had to undertake long and expensive clean up processes, which are still on-going for the most part. As part of this process, Spain’s listed banks managed to reduce their overall volume of problem real estate assets for the first time in 2014, according to data from their recently published annual reports.

The seven banks that form part of the IBEX 35 index (Santander, BBVA, CaixaBank, Bankia, Sabadell, Popular and Bankinter) closed last year with non-performing and substandard loans to property developers and unpaid homes, plots of land and other real estate assets amounting to €125,000 million. That balance represented a reduction of €7,000 million compared with the previous year. These are gross figures. If we look at the volume of provisions, the volume of as yet uncovered toxic risk decreased to just under €65,000 million, having decreased by €4,000 million in one year.

Overall, the reduction in toxic assets was exclusively driven by loans, since the real estate assets held by the banks (homes, developments, plots of land and shares held in real estate companies) continued to increase despite the fact that the entities have also been stepping on the accelerator in terms of sales. The banks are still seizing, foreclosing and receiving deeds in lieu of payment, for more properties than they are managing to sell.

A large proportion of the debt from the bubble is completing its cycle in this way. The banks have increasingly less exposure in terms of loans to property developers; the amount held by these seven entities decreased from €85,179 million to €68,086 million during the year. Furthermore, the volume of loans to property developers classified as normal, or up to date, also decreased. Now, only €18,000 million of these loans are considered as healthy, i.e. a quarter of the total. A large proportion of the loans went from being healthy to substandard or non-performing. And from there, to being written off (when loans are removed from the balance sheet and 100% of the losses arising from non-payment are provisioned) or to being classified as foreclosed properties (due to the foreclosure of the property or the handing over of deeds in lieu of payment). In 2013, only the volume of healthy loans decreased; doubtful and foreclosed debt increased, i.e. the volume of toxic assets grew. In 2014, the volume of non-performing loans decreased so significantly that, although the number of properties increased, the overall volume of “potentially problematic” real estate assets (as defined by the Bank of Spain) decreased for the first time. Until now, the only reduction in toxic assets (or rather transfer) happened when the banks transferred much of their developer exposure to Sareb, the bad bank.

In terms of properties, the largest increase related to plots of land, the asset that it is hardest to market. The banks have made provisions against almost 60% of the original value (of the plots of land they hold), but some plots have lost even more of their value and the entities are still reluctant to sell at a loss. There is barely any demand, transactions are relatively scarce and the banks are still seizing land from property developers unable to repay their loans. Thus, the volume of land in the hands of the seven IBEX 35 banks closed 2014 at a record high of €28,127 million, up €2,500 million compared with the end of 2013. Given the difficulties the banks are facing to find developers to purchase this land for construction, they are starting to adopt formulas that allow them to share the risk with the developers in exchange for providing the land.

The number of homes coming from from unpaid mortgages is also increasing. Specifically, the volume increased by €1,000 million last year, to €14,161 million. In this case, the increase was largely due to a delay in foreclosures. Procedures to seize homes that began at the height of the crisis are only now reaching their conclusion, even though the mortgage default rate seems to have already hit its peak.

The picture is also very different between the entities. Bankinter holds the badge of honour; it was the only one of the seven entities that avoided the temptation of the housing bubble. Its exposure to the sector was extremely low and it has hardly any doubtful debts or foreclosed properties. Next in line is Bankia, although in this case, the clean up of its balance sheet is less impressive: since it was achieved through the transfer of the bulk of its toxic assets to Sareb and the acceleration of the provisions against those assets that remained on its balance sheet.

Of the major banks, the entity that has done the most to clean up its real estate exposure is Santander. Its toxic property assets now account for only 15.3% of its lending to the private sector in Spain and just 1.5% of its consolidated assets. One step below are CaixaBank and BBVA. The entity chaired by Isidro Fainé has the highest level of provisions and the bank led by Francisco González benefits greatly from the international diversification of its business.

Sabadell is a special case. It appears to have high exposure to toxic assets, but a significant portion is covered through an asset protection scheme (that it acquired) when it purchased CAM. The entity with the most work left to do on the clean up front is Popular. Even though it has boosted the sales of homes, it has the highest volume of toxic assets and the lowest level of coverage of any of the seven entities.

Original story: El País

Translation: Carmel Drake

Martinsa Heads For Liquidation With A €4,603m Deficit

2 March 2015 – Cinco Días

The real estate company halved its losses in 2014 (to €313 million) but that was still not enough to plug the hole

Martinsa Fadesa recorded an ‘equity shortfall’ of €4,603 million at the end of 2014, according to the annual results presented by the real estate company, which was plunged into liquidation last Thursday after it failed to obtain support from the banks for its latest proposed debt repayment plan.

The real estate company, which is owned and chaired by Fernando Martín, holds assets valued at €2,392 million to meet total liabilities of €6,995 million, of which €3,200 million corresponds to debt with financial entities.

Martinsa closed 2014 with a net loss of €313.6 million, an amount that represents a 51.9% reduction in the losses recorded one year earlier.

The decrease in the loss resulted from a reduction in the provisions made by the company against the impairment of its real estate assets, which amounted to just €179 million in 2014, i.e. 60% of the amounted provisioned in the previous year.

Nevertheless, the accounts of the real estate company in 2014 included €131 million of financial costs relating to bankruptcy debt, which corresponded to the bankruptcy process that the company was involved in between 2008 and 2011, the largest ever bankruptcy filed in Spain’s history.

The company’s lack of liquidity to meet the debt repayment schedule established as part of the agreement that was made in March 2011 to allow the company to emerge from bankruptcy, forced the company to begin negotiations with the banks at the end of 2013.

In December 2014, when a new debt payment fell due and given that it was impossible for the company to reach an agreement with the banks, Martinsa submitted a proposal to the court to unilaterally reform the 2011 agreement.

The judge gave the banks until 26 February to state their views regarding the plan, but the company failed to obtain backing from 75% of the creditors (the required threshold) before the deadline expired, according to sources close to the process.

The company will hold an extraordinary Board Meeting today (Monday 2 March 2015) to analyse its own request for liquidation.

House sales

Martinsa Fadesa faces liquidation despite the fact it managed to increase its turnover by 18.3% in 2014, to €130 million, according to the accounts it has submitted to the National Securities Market Commission (Comisión Nacional del Mercado de Valores or CNMV).

It generated this turnover through the delivery of 1,585 homes in 2014, more than double the number handed over in 2013, of which 482 were registered in Spain and 1,103 overseas.

Besides Spain, Martinsa Fadesa undertakes activity in France, Morocco, Mexico, Romania, Poland, the Czech Republic and Bulgaria, although its operations in the latter are also in liquidation.

All of the homes that were pre-sold by the real estate company in 2014 correspond to this international activity.

Original story: Cinco Días

Translation: Carmel Drake

The Five Largest Banks Sold 19% More Properties In 2014

10 February 2015 – Cinco Días

Banks are stepping on the gas in the race to reduce the weight of properties on their balance sheets. Last year, Santander, BBVA, CaixaBank, Sabadell and Popular sold 86,726 properties in total, an increase of 18.7% on the 73,000 units sold during the previous year. However, this boost in the rate of sales has not been reflected on the revenue side.

In fact, revenue from this activity grew by only 6.4% from €10,699 million in 2013 to €13,619 million last year, due, in large part, to the reductions in the sales prices being applied by these entities. The pressure being placed on real estate assets by the significant provisions imposed by the Government in 2012 has allowed these five large companies to sell off 230,000 properties in just three years.

CaixaBank holds the record for the number of transactions – in 2014, it sold 23,400 of its own properties or 35,870 if we include those owned by developers that it supports. Some of this success was based on its commitment to the rental market, which accounted for €1,132 million of the €2,512 million generated from its foreclosed assets (or €5,432 million if we include sales conducted by third parties), whereas it takes an average of four years to sell foreclosed assets.

Overall, Caixabank generated losses from this activity amounting to €1,148 million, an impact that the bank hopes to mitigate between 2015 and 2016. This drive should be helped by the Texan fund TPG, which now controls the entity’s real estate company Servihabitat.

Another one of the entities that recorded the best results in this field in 2014 was BBVA, which opted to retain control of Anida, its real estate platform, contrary to the general trend towards outsourcing. BBVA sold off 23,069 properties in total, including both its own properties and those owned by the developers it finances and whose homes it sold; in total, it recorded income of €1,932 million.

As a result, BBVA generated 18% more cash in 2014 than in the previous year. The company says that it has noted “more buoyant demand” in “an environment in which prices are slowly stabilising”. The entity, chaired by Francisco González, celebrates the fact that its losses in this area decreased to €876 million in 2014 from €1,252 million in 2013. And explains that this improvement is based on a lower volume of outstanding properties that need to be cleaned up and the “the launch onto the market of foreclosed assets with a smaller adverse effect”.

Banco Sabadell follows next in the ranking; it has also decided to retain control of its real estate company, Solvia, and is considering a potential IPO, as it observes a gradual improvement in the market. The entity sold 16,172 properties in 2014, both owned and third party properties, for which it generated turnvoer of €2,744 million; in both cases these figures represented a decrease of 12% on the significant number of sales it recorded in 2013.

Banco Santander, which recorded strong sales during the early years, reduced its clearance rate to 11,615 properties last year, however the higher value of the remaining assets allowed it to still generate revenues above the €2,000 million it achieved in 2013.

Finally, Banco Popular is one of the entities that seems to have benefitted most from the outsourcing of its real estate platform, Aliseda, which is now controlled by a consortium of funds comprising Kennedy Wilson and Värde Partners. The entity, chaired by Ángel Ron, increased its sales from 3,900 properties in 2013 to 8,600 units last year, and doubled the corresponding turnover, from €732 million in 2013 to €1,503 million in 2014.

“We would not be able to increase sales at this rate if the provisions were not sufficient”, reflected the bank’s CEO, Francisco Gómez at the most recent results presentation, where he stated that these provisions have enabled the entity to account for “the properties at market prices”. As a result, the number two at Popular hopes to “increase the value generated from real estate sales over the next few quarters”.

Original story: Cinco Días (by Juande Portillo)

Translation: Carmel Drake

Santander & BBVA Reduced Their Real Estate Stock In 2014

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

Big Banks Record Losses Of €3,600m, Hit By Real Estate

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