Popular Stakes Its Future On The Segregation Of Its RE Arm

4 November 2016 – Expansión

Banco Popular is in the eye of the storm. The bank’s senior officials are facing the future by effectively placing a firewall between the entity’s normal banking activity and its real estate risk, however, the markets do not seem to be able to trust that they will succeed in finding their way out of the tunnel the entity entered when the real estate bubble was about to burst.

Following two major capital increases, amounting to €2,500 million each, and a third, smaller, capital injection of €450 million, as a result of which a Mexican investment group, led by the Del Valle family, became a shareholder of the group, the value of the bank (based on its share price) currently amounts to less than €4,000 million, making it the domestic financial entity that has seen its market capitalisation decreased by the most this year.

Popular has two lives: one afforded by its traditional business, which focuses on rendering financial services to individuals, self-employed people and SMEs, and where its efficiency and profitability ratios are high; and the other one, linked to the real estate sector, where the cumulative losses due to the impairment of its assets represent a real threat to the rest of its activity. (…).

Although the bank has received several offers to join a larger and more powerful financial group, the Board of Directors and the main shareholders who serve on the Board have categorically rejected them all, preferring instead to continue to lead the entity along its own path. “We do not want Popular’s intrinsic value to benefit others”, the entity has said time and time again, in order to justify its negativity towards a corporate operation in which it would fail to take over the reins. (…).

The two capital increases (the first one was carried out in December 2012 and the second one at the start of the summer) were accompanied by the appointment of Francisco Gómez (a man who has worked at the bank for his entire life) as the CEO (in the case of the first) and by his replacement by Pedro Larena, previously from Deutsche Bank and Banesto (in the case of the second). The aim was the same in both cases: to try to convince the market each time that the change in management was going to effectively deal with the recurrent problems, in other words, to eliminate the real estate risk.

Popular has tried to resolve its problems in the traditional way…by selling off its damaged assets at significant discounts, offset by growing provisions…but this has not proved sufficient, not least because the entry of damaged assets onto the balance sheet has been higher than the volume it has managed to sell through individual sales. (…).

Now, Popular is pursuing a strategy to segregate a substantial part of the real estate risk that it holds on its balance sheet (€6,000 million in book value), by placing it into a company that it will also endow with sufficient capital (around 20% of its liabilities). This capital will distributed free of charge amongst Popular’s existing shareholders in a way that will completely dissociate the entity from the transfer/sale. (…).

However, even once Popular has managed to eliminate a significant part of its real estate risk, the bank’s problems will not be over. That is reflected in the ERE that it is currently negotiating with the trade unions (which should be finalised by Sunday 6 November at the latest), which proposes the closure of 300 branches and a reduction in personnel of around 1,600 people through early retirement and voluntary redundancy packages. (…).

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

ECJ Puts An End To The Eviction Of Family Guarantors

21 October 2016 – Cinco Días

The European Court of Justice (ECJ) has ruled that mortgage guarantees from individuals to companies are protected by the European directive on unfair terms. In this way, the EU judges have opened the way for the cancelation of this kind of guarantee and its most draconian conditions, when the contracts favour financial institutions in an unfair way. The ruling also jeopardises the execution of guarantees between individuals, which are very common in the case of house purchases.

In less than a year, and thanks to one case in Italy and another in Romania, the European Court of Justice has revolutionised the treatment of mortgage guarantees, many of which will be protected by the European directive on unfair terms from now on. Until now, it was assumed that the guarantors of a company were responding to a professional relationship and therefore, they were not covered by the rules governing consumer protection.

However, that interpretation did not consider numerous guarantors whose relationship with the company was of a family or friendly nature, without any commercial interest whatsoever. And so, the European Court of Justice has put an end to the gap by classifying these types of guarantors as consumers.

In November 2015, the EU judges indicated and they have just reiterated (14 September 2016) that the European Directive 93/13 governing unfair terms should protect people who guarantee the credit of a company that they do not manage or hold majority shares in.

In such cases, the new European legislation considers that the guarantor is acting as a consumer and therefore, the national courts may cancel the guarantee if they consider that the contract did not inform them properly about the risks or if the contract grants an unfair advantage to the financial institution.

The lawyer Juan Ignacio Navas, Partner-Director of the law firm Navas & Cusí, classifies these types of guarantees, which do not generate any economic benefits for the guarantor, as “altruistic”. And he says that they are granted regularly, particularly in the case of small and medium-sized companies. (…).

Navas believes that the new legislation will not only affect guarantees for loans to companies but will also be extended to all types of individual guarantors. (…).

The lawyer said that many mortgage loans are signed with these altruistic guarantees: “Cousin, brothers, daughters, parents and friends, in other words, people linked by family or friendship ties, without any economic interest”.

Legal sources stress that in these types of contracts “the guarantor is risking something as important as his/her home without gaining anything in return and he/she does so because of the pressure exerted by financial institutions”. (…).

Nevertheless, other lawyers, such as the Partner of the law firm Jausas, Jordi Ruiz de Villa, warn that the rulings from the European Court only ensure that the conditions of these guarantees will be reviewed from the perspective of consumer protection and that even if a contract includes an unfair term, a judge may decide to just cancel that term or amend the commission charged without the need, for example, to cancel the entire guarantee.

As a result, some Spanish judges have already declared some mortgage guarantees to be null and void as they considers that they include unfair terms, which means that the rulings from the European Court may help halt the evictions of these kinds of family or friend guarantor.

Original story: Cinco Días (by Bernardo De Miguel and Juande Portillo)

Translation: Carmel Drake

Deutsche Bank Sells €430M NPL Portfolio To Oaktree

21 October 2016 – Expansión

The Spanish subsidiary of Deutsche Bank, led by Antonio Rodríguez Pina, has cleaned up the majority of the non-strategic assets that it has been holding in its NCOU (Non-Core Operating Unit) division. According to sources at the entity, the portfolio includes non-performing loans to SMEs, residential mortgages that have been refinanced and structured credits, amounting to €430 million in total. According to a document submitted yesterday by Deutsche Ban SAE to Spain’s National Securities and Exchange Commission (CNMV), this transaction forms part of the bank’s strategy to “substantially reduce the assets of that division before the end of 2016”.

Sources familiar with the operation confirmed that the US fund Oaktree will be the buyer, following a competitive process in which, according to Deutsche Bank “the main investment funds and entities specialising in the sector have participated”.

According to data from Deloitte, Oaktree is, along with Lone Star and HSH, one of the largest buyers of problem assets, with more than €5,000 million in Europe, followed by other players such as Bain Capital, AnaCap and Apollo.

This operation will allow Deutsche Bank “to save costs in terms of the resources it dedicates to the management of this portfolio and, at the same time, reduce its capital requirement”, according to the statement submitted to the CNMV.

Robust results

Despite the delicate situation that the German parent company is facing at the moment, Deutsche Bank in Spain is reporting robust results. At the end of last year, it reported earnings of €91 million compared with losses in the previous year year, according to data from the AEB. Nevertheless, during the first half of this year, the bank has slowed its growth earning just €24.65 million, which represents a decrease of 32% with respect to the same period last year.

Original story: Expansión (by D. B.)

Translation: Carmel Drake

Bank of Spain: Default Rate Falls To 9.44% In June

19 August 2016 – Expansión

Yesterday, the Bank of Spain published provisional data for 30 June 2016, which shows that the default rate decreased for the fifth consecutive month, to 9.44%, its lowest level since June 2012. The figure includes the change in methodology for classifying Financial Credit Establishments (EFC), which are no longer included within the category of credit institutions. In this way, the default rate has now been below the 10% threshold for the fourth consecutive month.

The decrease in the default rate has come despite the fact that total credit in the sector rose by 1.2%, the first increase since November 2015. Specifically, total credit increased by €15,682 million to €1.298 billion. “The decrease in the default rate coincides with the strong growth in new loans to SMEs and households”, said José Luis Martínez, spokesperson for the Spanish Banking Association (AEB).

Doubtful debt

The doubtful debt balance sank to €122,508 million, down by €3,689 million compared with the previous month, its lowest level since June 2011. Financial entities have decreased their combined doubtful debt balance by more than €70,000 million since the peak in 2013, when it exceeded €200,000 million.

Therefore, the clean up of the financial sector is now a reality. Nevertheless, some entities have performed the process more quickly than others. In the last year, Sabadell and Bankia stand out as the entities that have got rid of the most doubtful assets, having reduced their doubtful balances by almost a quarter each. Specifically, the Catalan entity has reduced its doubtful debts by 23.9% and Bankia by 23.2%. Three other Spanish entities reduced their doubtful balances by at least a fifth between June 2015 and June 2016, namely: Liberbank (22.4%), Abanca (22%) and CaixaBank (20%).

Several factors have contributed to the reduction in the doubtful debt balance. As well as the macroeconomic improvement seen in recent years, the entities have accelerated their portfolio sales to large funds.

Another way in which the banks have shrunk their large doubtful balances has been through foreclosures, especially of unpaid loans to property developers overdue by more than one year.

Original story: Expansión (by D.B.)

Translation: Carmel Drake

Bank Lending To Individuals Peaked In April

8 June 2016 – Expansión

The banks are stepping on the accelerator to sign new loan contracts. In April, the rate of new mortgages and consumer loans granted by Spanish financial institutions reached levels not seen since before the rescue (of the sector) in 2012. Nevertheless, new operations to large companies declined during the month, which meant that the total volume of new loans granted in April decreased by 7.9% to €34,600 million, according to data from the Bank of Spain.

In this way, Spain’s banks are clearly focusing on three areas to secure new business and whereby improve their returns:

1. Mortgages: the volume of new mortgages to buy homes amounted to €5,173 million in April, twice as much as last year and the highest monthly figure since December 2012. Even so, that figure does include renegotiations. If we exclude those, the amount of new money granted for mortgages during April amounted to €2,920 million, i.e. 45% more than during the same month last year and the second highest monthly figure in the last year. The banks hope to offset the low profitability of the mortgages granted during the years of the real estate boom with these new mortgages.

2. Consumer credit: Another segment that the financial entities are pushing hard is that of consumer credit, in light of the high interest rates being offered (c. 7.52%), according to the latest figures from the Bank of Spain. In this way, the financial sector granted €2,330 million of new financing to consumers in April, almost 50% more than a year earlier and the largest volume since May 2010.

3. SMEs: The financial sector is also focusing on its business with SMEs, where the banks are waging a battle to secure new clients. Nevertheless, the loan volumes there did not reach record levels in April – €11,710 million was granted, which was 14% more than a year earlier, but lower than the figure in December – like in the cases of mortgages and consumer credit, but the price at which new loans are being granted did, averaging 7.52%, the lowest level seen in recent months.

However, the banks have encountered a more complex panorama in the market for medium-sized and large business. Regarding the former, the volume of new loans grew by just 4% in April, whilst in the case of the later, the volume of loans granted declined by 40%. According to Fernando Alonso, Director of Companies and Corporations at BBVA, speaking in a recent interview, the “political uncertainty may well be delaying investment decisions at the corporate level”.

For the first time, the Bank of Spain provided data about renegotiations in its figures for April; it also gave details about loans to companies by amount; deferred credit card payments – also at record highs -; and overdrafts to households and companies.

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Bankia Granted €16,600M In Loans In 2015, Up By 12.5%

22 January 2016 – Expansión

Last year, Bankia granted €16,600 million in new loans, in particular to companies and SMEs.

Bankia has reported today that the volume of new loans it granted last year increased by 12.5% compared with 2014, to reach €16,600 million in total.

The entity, which will present is annual results on 1 February, did not disclose any information about the evolution of its loan balance, although experts think that it will have decreased, in line with what happened in the third quarter, due to (the trend in) mortgages and the sale of portfolios.

By contrast, they expect that the balance of loans to companies will have closed the year up, after recording several quarterly rises. Specifically, this balance had increased by 5.1% as at September.

Bankia pointed out that almost 84% (€14,000 million) of all the new loans granted were taken out by companies. And, within that segment, the group that experienced the greatest increase (in percentage terms) were self-employed people, to whom new financing increased by almost 73% to reach €216 million.

Meanwhile, the bank granted more than €3,200 million in loans to SMEs, compared with €2,250 million during the same period in 2014, which represents an increase of 43%. Larger companies were granted loans amounting to €10,500 million.

Original story: Expansión (by M. R.)

Translation: Carmel Drake

Sareb Expects To Complete 22 Housing Developments In 2015

11 May 2015 – El Economista

The Asset Management Company for Bank Restructurings (Sareb) expects to finalise (the construction of) 22 housing developments during the course of the year; in the meantime it will study the selection of 60 other construction works with a view to their completion.

Sources at the so-called ‘bad bank’ have explained to Europa Press that the developments that will be completed this year are located in (the autonomous communities of) Cataluña, Valencia, Galicia, Castilla y León, Extremadura, Madrid and Cantabria, and they have indicated that “in theory” they will be available for sale.

In 2014, the company approved the launch of 52 housing developments and 30 of those obtained their First Occupancy Licence during the year. Investments in real estate assets during the year amounted to €35.6 million, primarily focused on the urbanisation of land and plots (of land) and on the progression and finalisation of work in progress.

Specifically, 19 developments were approved in Cataluña, 17 in Valencia, four in Galicia, three in Cantabria, three in Castilla y León, two in Castilla-La Mancha, two in Madrid, one in Extremadura and one in La Rioja. Of those, it is expected that the following developments will be completed this year: nine in Cataluña, five in Valencia, two in Galicia, two in Castilla y León, one in Extremadura, one in Madrid and two in Cantabria.

Maintain the rate of property sales

Sareb has set itself the objective of maintaining the rate of property sales at close to 15,000 in 2015 and retaining its position amongst the five largest players in the market. It is also seeking to increase the quality of services through its new “servicers”.

The ‘bad bank’ is looking to intensify its offer to those investors that specialise in adding value, as well as to sell a “wide range” of portfolios to institutional investors during the year.

The company generated income of €1,115 million during 2014, thanks to sales to specialist investors. It also closed eleven major transactions, primarily involving loans, which accounted for 84% of its wholesale transactions (during the year).

In this way, Sareb closed the sale of the following portfolios: ‘Kaplan’ (loans to SMEs secured by residential property and land); ‘Crossover’ (land in Alicante, Baleares, Barcelona and Madrid); ‘Dorian’ (rental housing); ‘Klaus’ (loans to SMEs); and ‘Pamela’ (loans secured by buildings in Madrid).

Other transactions included the sale of ‘Agatha’ (loans and rental property); ‘Aneto’ (loans secured by residential property and land); ‘Olivia’ (loans secured by residential and commercial property); ‘Meridian’ (loans secured by tourist assets); and ‘Corona’ (offices leased in Madrid).

Original story: El Economista

Translation: Carmel Drake

Fitch Confirms The Credit Recovery In Spain

23 April 2015 – Expansión

Over the last month, Fitch Ratings has revised upwards its growth prospects for Spain in 2015 and 2016, to 2% and 2.3%, respectively. In this context of recovery, the agency notes that “new credit growth has been more robust during the first quarter of 2015” and it expects this trend to continue for the rest of the year. Although, the pace will depend on “the strength of the economic recovery and consumer confidence”. “The banks’ healthier balance sheets and initiatives being taken by the ECB to improve liquidity, including the TLTRO (long-term auctions) should support this increased lending”.

Fitch makes these reflections upon publication of its Fitch Spanish Fundamentals index, which analyses changes in the fundamentals of credit, taking into account the key indicators of the Spanish economy: the evolution of mortgages, SMEs and securitisations, the expected EBITDA (gross operating profit) and capital expenditure (capex) of companies, ratings outlook, CDS forecasts, new credit, unemployment prospects and trends in transport. The index ranges from 1 to 10 and Spain is awarded a six, which shows that “its recovery is holding up”.

Unemployment

In terms of unemployment, another one of the key variables that Fitch uses in its new index, the agency forecasts that the rate will amount to 22.5% and 21% in 2015 and 2016, respectively. “This positive trend in employment will support domestic demand. The increase in real disposable income, together with the fall in oil prices, should also drive economic growth”. Nevertheless, in the agency’s opinion, unemployment continues to be too high and, as a counterpoint, it warns that the non-financial corporate sector is continuing to deleverage.

The agency confirmed Spain’s BBB+ rating in October last year with a stable outlook.

Original story: Expansión (by D. Badía)

Translation: Carmel Drake

Cost of Loans to SMEs, Homebuyers In Its Four-Year Lows

12/01/2015 – El Economista

Spanish banks’ race for capturing clients has caused the loan prices to plummet in the last four years. The annual percentage rate (APR) for new mortgages stood at 2.859%, at 4.399% for SMEs and at 2.396% for over-a-million companies in November.

We should take a look back at the December 2010 figures to find lower rates. High competitiveness has pushed banks to reduce their interests by 0.50% since January 2014, and by 1.148% in the particular case of SMEs. With the rates hitting the bottom, the entities have to focus on loan volume to obtain profits.

The armistice imposed by Spain’s Central Bank allowed the entities to save up to €8.1 billion from January to September, equivalent to 27.03% of the financial costs.

Once deposits hit the rock-bottom, the savings scheme will have to be shifted upon credits, experts say.

The only vetoed destiny for the liquidity is the real estate world. And still, it has become the battlefield for the credit war. On Thursday, Kutxabank blew the market with a mortgage offer with 1% spread over the Euribor which took the first place in the current ‘cheap loan for house purchase’ ranking. Banco Santander and ING Direct position just behind it with their 1.69% spread. Farther on we find BBVA and Popular (1.80%), Sabadell (1.70%) and other entities like Liberbank (1.54%). Only a year ago, common spreads were of 2.5%, or even 3%.

In absolute terms, the prices are painfully low as the benchmark, the Euribor, also posts record-low. In November, it showed 0.335%, meaning an average spread of 2.524%. To compare, during the real estate boom 0.5% (or even 0.25% for best customers) spreads were no novelty.

Precisely, present offer is addressed to customers earning at least 1.000 to 2.500 euros and it involves all types of loyalty products (insurances, pension schemes, minimum credit/debit card spending). There is still some margin to fight with, both in loan prices and conditions, but relaxing them even more would mean higher risk and rejecting certain profits, while the industry faces the challenge of raising them instead.

 

Original story: El Economista (by E. Contreras)

Translation: AURA REE