BBVA & Sabadell Hold Delicate Negotiations with the FGD to Sell Their Assets

5 February 2018 – Expansión

BBVA and Sabadell want to remove from their balance sheets the damaged real estate assets that they still own as a result of their acquisitions of Unnim and CAM, respectively. Those assets, which have a book value of around €16 billion in total, are temporarily protected by an Asset Protection Scheme (EPA), which, was granted at the time by the Deposit Guarantee Fund (FGD) so that the two banks would take on the business of the former savings banks, which had filed for bankruptcy. The negotiations that the two banks are now holding with the FGD share significant difficulties that cannot be solved easily, although they also have notable differences.

The European Central Bank has been putting pressure on the supervised entities to remove any damaged assets that they still own from their balance sheets, as soon as possible, because it understands that their maintenance reduces the banks’ ability to make profits and lets the doubts continue to hang over the real health of the entities. Now that the ECB considers that the worst of the crisis is over and that the banks are reasonably capitalised, it wants to clear up all the doubts. He has granted a period of five years for these problems to be resolved, although, in reality, it wants them to be sorted in a shorter timeframe: within three years.

When it acquired Popular, Santander launched a procedure to remove all of the real estate assets of its subsidiary from the balance sheet, by reaching an agreement with Blackstone to create a mixed company, in which the US fund holds the majority stake and where Santander has parked assets with a theoretical value of €30 billion. Liberbank has done the same, for a much small sum, retaining just 10% of the capital in its new company.

Meanwhile, BBVA has reached an agreement with Cerberus to transfer €13 billion to a company in which the bank will hold a 20% stake. Of those assets, a significant part, around €4 billion, correspond to assets proceeding from Unnim, which have a guarantee from the FGD for 80% of the losses that may be incurred at the time of their sale.

Meanwhile, Sabadell wants to divest assets worth €12 billion, which sit in a portfolio that is still subject to an EPA that will end in 2021, with the same guarantees as BBVA’s. The difference in the size of the two portfolios is clear.

That is where the problem arises. To close the operation, the FGD needs to accept that it will assume the losses incurred at the time of the sales. And even though its resources have been contributed exclusively by the financial institutions themselves, the public body does not have sufficient funds to assume those losses and whereby avoid grounds for dissolution.


In reality, the portfolio proceeding from Unnim does not cause excessive problems for several reasons. Firstly, it is smaller and, therefore, the loss to be assumed is considerably reduced. Moreover, according to sources in the know, the FGD has already recognised a coverage for those assets that is pretty close to the market value at which they could be sold (…).

The case of Sabadell, however, is different because the size of its protected portfolio is much larger. It started off at €22 billion and now amounts to just over half, around €12 billion. Sabadell considers that the real value of its assets is approximately half their theoretical value (…) but the FGD (…) maintains that the provisioning need is much lower, around 35% of the book value of those assets.

The difference in criteria between the two parties is important. In figures, it means that there is almost €1.8 billion that separates them and that, of that amount, if it is confirmed in the end, the FGD would have to assume almost €1.5 billion. That would be impossible in the current conditions, because it would mean that the body that guarantees the deposits of banking clients up to €100,000, would have to declare itself bankrupt or, as it has done on other occasions, impose an extraordinary surcharge on its shareholders, domestic entities, to balance its accounts and cover the hole (…).

A solution

But, on the other hand, the FGD is also interested in closing the chapter on asset protection schemes as soon as possible because, until that happens, it will be very difficult to progress with the construction of a European deposit guarantee fund, which is the third leg of the banking union. Indeed, it is not being built precisely because of reluctance being shown by the countries in the north to assume the problems of the past (…).

For this reason, sources close to the conversations confirm that they are now focusing on a possible solution that goes beyond the current moment. The FGD may be interested in reaching an agreement that would entail the possibility of accounting for the losses not in a single year, but rather over a longer period of time, possibly three years. The next few weeks are important because the authorities want to close the conversations before the end of the month.

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Madrid’s Gov’t Seeks To Acquire Housing Stock From Banks

15 March 2016 – El Mundo

The regional Government of Madrid has set its sights on the unsubsidised homes that banks have been unable to sell during the years of the crisis. A spokesperson for the Ministry of Transport, Housing and Infrastructure has confirmed that it has made initial contact with several banking institutions, specifically, with Bankia and La Caixa, to make its idea of incorporating the real estate stock into the regional Administration’s portfolio a reality. (…).

The idea is that the Community would take over the portfolios of homes from the banks and convert them into social housing.

“We would only do this if the properties cost the same or less than the social housing homes that we are constructing. The idea is, not only to save costs, but also to speed up delivery times for beneficiaries. If the proposal gets approved, the people being awarded the homes will not have to wait until all of the administrative procedures have been completed to benefit from a public price. We would save time in terms of publishing the offer, assigning the project and constructing the properties”.

Problems to resolve

Of course, the operation is not without its problems, given that, in many cases, the properties are currently occupied illegally. Therefore, the operation would run into problems if the portfolios of homes to be acquired include properties of that kind. (…).

The idea, which is in its very early stages of development, would be to award public housing: for rent, for rent with the option to buy and social housing. Moreover, regardless of whether the figures add up or not, the technicians from the Ministry would have to evaluate the legal pros and cons of the operation.

Currently, the Community of Madrid is one of the regions in which the sale of homes, in particular second-hand properties, has grown by the most. On 9 February, Sociedad de Tasación – a company that specialises in property valuations, appraisals, certifications, real estate advice and housing data – calculated that the supply of new homes in the region and in the capital has decreased gradually since 2014. In total, it calculates that supply has decreased by 38.5% over the last two years, according to the New Home Census 2016 report that it compiled.

It claims that there are currently 5,474 unsubsidised homes available and according to its calculations, at the current rate of sales, it would take ten months for those properties to be absorbed by the market. (…).

The Government of the Community of Madrid has tried to mediate between the banks and the real estate sector in the past, in order to focus the market and acquire properties for those most in need, but it has not had much success to date. (…).

Original story: El Mundo (by Jaime G. Treceño)

Translation: Carmel Drake