Spain’s Banks Take Advantage of The Expansive RE Cycle to Sell Properties

21 January 2018 – Efe Empresas

According to Joaquín Robles, analyst at XTB, speaking in an interview with Efe, the banks have waited “for several years for a recovery in house prices” to reduce their exposure to property.

The good health that the real estate sector is currently enjoying is reflected in a study from BBVA Research, which shows that new home prices are expected to rise by 4.9% in 2018. The banking institutions have also decided to reduce their real estate weight due to the changes that have been introduced to international and Spanish accounting legislation.

The new regulations require entities to increase their provisions using own funds to strengthen their capital ratios, with the aim of being more solvent in the event of another possible market crash in the future.

These modifications “will translate into an increase in provisions of 13% on average for the large European banks”, said Robles.

Real estate sales is a correct strategy for the banks

The sale of real estate assets is “a correct strategy from the point of view of banking management”, says the Partner responsible for the Financial Sector at KPMG in EMA and the Head Partner of KPMG Abogados, Javier Uría.

In fact, “the divestment of real estate assets that is happening will result in the strengthening of the sector”, he added.

Spanish banks have reduced their real estate assets in a greater proportion than other European banks, as a result of the effects of the economic crisis and the evolution of the economy.

One example of that is BBVA, which decided to reduce its exposure to property to a minimum, with the sale in November of its Spanish real estate arm to the investment fund Cerberus for €4 billion.

That operation was “hugely important” for BBVA, since it reduced its exposure “to an activity that is unrelated to its core business”, according to comments made at the time by the CEO of the entity, Carlos Torres Vila.

Uría said that Sareb has made an important contribution to this process.

That company, also known as the “bad bank”, was created with the objective of reducing the risks of the financial institutions and orderly liquidating the problem real estate assets within a maximum period of 15 years.

Sareb received almost 200,000 assets worth €50.781 billion, of which 80% were financial assets and 20% were real estate assets.

The income statements of the banking entities will be affected by their real estate divestments in a positive way, since they will result in lower requirements in terms of capital and provisions, as well as in a “reduction in the costs associated with the ownership of these types of assets”, concluded Uría.

Original story: Efe Empresas (by Javier Melguizo)

Translation: Carmel Drake

 

Mount Street Takes Over the Management of WestLB’s NPLs in Spain

12 December 2017 – Expansión

The British firm also wants to negotiate agreements to manage the portfolios of Spanish banks and Sareb.

A new operator has arrived in the Spanish market for the management of debt in default or with a high risk of non-payment. Mount Street London Solutions has taken over a platform that manages the “toxic” portfolio of the former German entity WestLB and has whereby acquired an office in Madrid. Through this deal, the firm aspires to obtain new clients in Spain, including financial institutions and investment funds operating in the sector.

Mount Street was owned by the fund Greenfield Partners until February when its directors purchased the firm with support from the German bank Aareal Bank, which took over 20% of the share capital. In October, the loan manager took a leap in its business with the purchase of EAA Portfolio Advisors, an entity created in Germany to administer WestLB’s non-performing assets after the bank was rescued by the German Government in 2008. Its function is to try to recover those loans, restructure them, sell them on or foreclose the assets that secure them.

Of the €200 billion in problem loans that WestLB held, €22 billion remains, under the management of EAA. The portfolio includes loans, primarily to firms in the renewable energy sector, which WestLB granted in Spain before the crisis. By acquiring EAA, Mount Street has purchased its office in Madrid along with the 6 employees that manage its portfolio.

The objective of Mount Street is to use this foothold in Spain as a platform to grow towards new business areas, especially in the real estate debt segment. “The team that we have incorporated in Spain has been working for years to restructure debt in the infrastructure sector, in particular, in the solar energy segment, and we are now able to contribute our specialisation in the real estate area that we offer in the rest of Europe”, said Ravi Joseph (pictured above), Founding Partner of Mount Street, in an interview with Expansión.

The firm, which is headquartered in London, sees several opportunities for accessing the Spanish property market. On the one hand, he hopes to negotiate agreements with financial entities and/or with Sareb (…) to manage some of their portfolios of problem loans. Another option is to help those property developers struggling to make their repayments to allow them to “repurchase” their loans from the investment banks that acquired their debt from the banks back in the day. The final option is to collaborate with small investors that are still arriving in Spain interested in acquiring non-performing loans (…).

In Joseph’s opinion, the appetite of international investors to enter Spain is still very high despite the political crisis in Cataluña. “The major international investors are still very interested in Spain. Much more so than in Italy. Spain has entered a virtuous circle (…). The uncertainty in Cataluña may affect growth somewhat, but the overall trend will continue to be upward”.

After acquiring EAA, Mount Street now manages debt amounting to €48 billion in total.

Original story: Expansión (by Robert Casado)

Translation: Carmel Drake

Sareb Unlikely To Distribute Any Profits To Its Shareholders

30 December 2016 – Expansión

Accounting circular / The Ministry of Finance has softened its demands on Sareb. In exchange, the bad bank’s owners, namely, the State and Spain’s largest banks, will not receive anything for their investments in the bad bank, for at least the next few years.

The Ministry of Finance has softened the situation facing the shareholders of Sareb (the most important of which is the State, through the Frob), by not forcing it to recognise latent losses in its income statement, like it has been obliged to do until now. In exchange, the Ministry has shut down the possibility that these shareholders will receive any results from their investment, even if the company does manage to generate profits at some point.

The harsh situation created by the accounting circular that the Bank of Spain designed for Sareb has barely lasted a year. According to that legislation, Sareb was obliged, within a period of two years, to reappraise all of the assets on its balance sheet (which proceeded from the real estate portfolios of the former savings banks that received public aid) and recognise the latent losses in the income statement each year, given that the price at which it bought those assets was significantly higher than their market prices.

The reality of all of this was seen last year when, in order to avoid near bankruptcy, the bad bank reduced its capital to zero and converted a substantial part of its subordinated debt (€2,171 million) into capital, to offset some of the losses for the year and restore the equity balance. Sareb recognised provisions amounting to €3,900 million in 2015 and recorded capital of €953 million (2% of the balance sheet) and subordinated debt of €1,429 million.

It was expected that something similar would happen this year, although with a less intense effect, given that most of the assets were reappraised in 2015, and that the capital balance would again be reduced and more subordinated debt would be converted into capital.

But to avoid this, the Ministry of Finance has made two significant changes. The first is that Sareb must continue valuing its assets at market prices, but if those values result in the creation of latent losses, then rather than recognise them in the income statement, they should be recorded in the equity statement, whereby reducing the company’s share capital. In parallel, and to avoid the company having to file for insolvency due to an excessive reduction of its capital, Sareb may also benefit from the exception afforded to real estate companies at the height of the crisis, which exempted them from having to comply with a certain relationship between the value of their assets and their own funds. (…).

Two conditions

In exchange for these concessions, which will undoubtedly give Sareb some much needed breathing room, the new legislation from the Ministry of Finance establishes two conditions. The first is that when an asset is sold for below its acquisition price, the real loss must be recognised in the income statement; and the second is that if Sareb generates profits in the future, then whilst the equity account exists in which the latent losses are being reflected, then all of the profits earned must be applied to that account. That means that, in all likelihood, Sareb’s shareholders (…) will not receive anything for their investments in the company over the next few years. And it is reasonable to think that they will never receive anything, given Sareb’s asset composition.

This is the first time that this fact has ever been acknowledged, more or less explicitly. (…).

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Spain’s Banks Still Own €350,000M Of Toxic Assets

26 September 2016 – Expansión

Spain’s banks still have €350,000 million of problem assets on their balance sheets, which they must get rid of if they want to tackle another major problem that they are now facing: their lack of profitability. Most of them have already strengthened their capital to comply with the regulatory obligations demanded by the European Central Bank (ECB).

However, according to data compiled by the ratings agency Moody’s, based on statistics from the European Banking Authority and the Bank of Spain, the burst of the real estate bubble in 2008 and the subsequent financial crisis have left non-performing loans, properties and deferred loans, with a total value equivalent to one third of Spain’s GDP, on the entities’ balance sheets.

Approximately €140,000 million of the total €350,000 million accumulated on the balance sheets of the entities corresponds to non-performing loans or NPLs, whilst the rest is divided between assets such as property developments and land owned by the banks and loans whose recovery has been postponed because the borrowers have not been able to afford the repayments.

As a whole, this burden is reducing the banks’ ability to handle their other great problem: monetary policy at zero-interest rates. Between January and June 2016, the revenues of the banks listed on the stock market which decreased by 1.3%.

In order to resolve this problem, the large entities are having to resort to the market to get rid of their bad loans, albeit with average discounts of 30% on their original values. Various alternatives are being explored to this end, including the structure being prepared by entities such as Banco Popular, which will debut a subsidiary on the stock exchange containing up to €6,000 million of toxic assets. Other entities are packaging up and selling loans and properties to funds that specialise in their management. According to the consultancy firm Deloitte, Spain’s financial entities currently have problem assets worth €20,000 million up for sale.

The analysts at Moody’s consider that the rate of reduction in the non-performing loan balances of Spanish banks is clear for all to see. “But it is not as visible in terms of the volume of foreclosed properties or deferred loans, which are still classified as performing”, explain María Cabanyes and Alberto Postigo, analysts at the ratings agency. They consider that it is essential that these latter loan categories be included within the “problem” loan balance so as not to hide any of the risks.

Moody’s, which estimates that Spain’s banks have deferred loans amounting to around €100,000 million, highlights that on the basis of the transparency exercises performed by the European Banking Authority, Spain is one of the banking systems that is most exposed to the problems of toxic assets. (…).

For this reason, from 1 October 2016, a new calculation method for recognising provisions against these assets will come into force, imposed by the Bank of Spain. (…).

Original story: Expansión (by Daniel Viaña)

Translation: Carmel Drake

Spain’s Bank Sold €15,800M In Non-Core Assets In 2015

18 February 2016 – Cinco Días

Spanish banks sold non-core assets amounting to €15,800 million in 2015. Spain accounts for 17% of transactions in Europe. Sabadell, Bankia, CaixaBank and SAREB were those most active. The sales pace will go on in 2017.

Investors keep betting on the purchase of non-core assets sold by European banks, with UK on the lead. In total, these sales in Europe accumulated a record of EUR 104,000 million over the past year, the highest level since 2008 according to the European Debt Sales report prepared by KPMG.

Spanish financial institutions divested some EUR 15,800 million, representing 17% of total asset portfolio transactions considered non-core carried out in the continent. Despite these sales, the financial sector still has some 238,000 million in non-performing assets (including doubtful and foreclosed), according to June Data from International Financial Analysts (AFI).

Sabadell, Bankia, CaixaBank and SAREB are so far the Spanish entities making the greater efforts to clean up their balance sheet through divestments of non-core asset portfolios. Bankia and Sabadell remain, however, the hottest sellers in the Spanish market, with one third of the transactions. As a novelty, BBVA has made its first sales over the past year, which brought its first market secured portfolio, an operation called Proyecto Liceo. And BMN with two projects, Neptuno and Pampa.

United Kingdom was the country with the highest sales activity during past year. Debt portfolio divestments totaled EUR 39,000 million. KPMG´s report, one of the most active companies in this type of transaction keeps that Spain has embarked on a path of deleveraging and economic recovery which makes it an interesting country for investors, this way competing closer to UK and Ireland – the latter with sales of EUR 25,000 million over last year. The same applies to Italy, where the amount of transactions totaled 13,300 million, largely from sales of real estate assets owned by its banks. Divestments in UK and Ireland are related to assets included in their “bad banks”. As an example, the study notes that the British entity managing problematic assets in the UK sold through Granite Project a portfolio of EUR 18,000 million to Cerberus Fund.

Despite strong sales, investors keep their interest in Europe in general and particularly in Spain, especially in the purchase of loan portfolios. Ongoing projects in the continent total 44,000 million. The report also reveals that the pace of this activity will go on in 2017, partly due to access to funding at very low interest rates.

The partner responsible for the sale of KPMG´s Corporate Finance portfolios in Spain, Carlos Rubí, stressed that Spain and Italy, “are increasingly active and attracting the investor´s appetite at the expense of UK and Ireland.”

Original story: Cinco Días (by A. Gonzalo)

Translation: Aura Ree

Banks Sign Deal With Gov’t To Add 3,000 More Homes To FSV

14 September 2015 – El Economista

Today, the Spanish banks will sign an agreement with the Government to increase the number of homes in the Social Housing Fund (‘Fondo Social de Vivienda or FSV) by 3,000. The FSV initiative was created to respond to the needs of families made vulnerable by the economic crisis.

The changes to the agreement will not only increase the number of homes, but will also extend the scope of the fund, according to reports from the Ministry of the Economy and Competitiveness.

This addition of 3,000 homes is equivalent to a 50% increase in the size of the existing FSV, taking the total to 9,000 homes. The expansion of the fund is the result of meetings held on the subject between the Ministry of the Economy and representatives of the major Spanish banks.

Until now, the social fund comprised a stock of almost 6,000 homes, of which less than half have been rented out. The FSV was created in 2013 using homes that had been foreclosed by the banks, to make them available to vulnerable families in special situations that had been evicted from their own properties for failing to keep up with their mortgage repayments since 1 January 2008.

The terms of these leases, provided by 33 entities in total, include: a rental income of between €150 and €400 per month, up to a maximum limit of 30% of the household’s combined net income; and a lease term of two years, extendable to three years in certain cases.

To access the initiative, the total monthly income of a household may not exceed the limit of three times the Multiplier of the Public Income Index (IPREM) (i.e. €1,579 under the current IPREM) and none of the family members may own their own home.

Profile of the families

FSV homes are mainly allocated to large families, single-parent families with two or more dependent children, families that have a disabled family member, families that do not qualify for unemployment benefit and families that include a family member that has suffered from domestic violence.

In February, the creators of the FSV decided to extend its term for another year, until January 2016, after it had been in force for 2 years. During that time it provided assistance to 1,465 families who had found themselves in a vulnerable situation as a result of the economic crisis.

The Fund was launched on 17 January 2013 by agreement between the Ministry of the Economy and Competitiveness; the Ministry of Health, Social Services and Equality; the Ministry of Development; the major banks in the country and their associations; the FEMP; and the platform of the tertiary sector.

Original story: El Economista

Translation: Carmel Drake

Spain’s 6 Largest Banks Sold 236 Properties Per Day In Q1 2015

18 May 2015 – Cinco Días

Moody’s believes that the entities are delaying their property sales to avoid selling at a loss.

Sales decreased by 4% compared with 2014, but the entities increased their revenues.

The large banks boost sales by 19%, by lowering prices.

The large Spanish banks seem to have reached cruising velocity in terms of the rate of property sales. During the first quarter of the year, the six largest entities in the country sold a total of 21,221 properties, which represents an average rate of sales of 236 per day, a slight decrease of 4% compared with the 246 properties that were sold per day during the same period last year.

Although the market is very susceptible to seasonality and traditionally the fourth quarter yields many more transactions that the first quarter each year, these results show a certain degree of stabilisation after the transfer of the bulk of the banks’ real estate assets to investment funds caused sales to soar by 57% at the beginning of 2014. However, this boost did not allow the sector to reduce the heavy weight of property on its balance sheet.

“With the exception of the partial transfer of assets to Sareb, the so called Spanish bad bank, the stock of foreclosed properties on the balance sheets of Spanish banks has increased steadily since the start of the financial crisis in 2008”, said the risk ratings agency Moody’s, in a report about the sector to be issued this week.

The latest data compiled by the Bank of Spain reveals that the banks’ real estate charge at the end of 2014 was still €83,409 million. Although that figure exceeded €100,000 million in 2012, it was primarily the transfer of toxic assets from the banks to Sareb that enabled it to decrease to €75,000 million, since when the figure has continued to rise because the rate of sales still does not exceed the rate of new foreclosures.

“The banks are avoiding selling assets at a loss and are instead waiting for the market conditions to improve significantly” before they increase their current rate of sales, conclude experts at Moody’s.

The high volume of provisions already recorded by the sector and the gradual stabilisation of prices in the market also threatens to moderate the sale of properties, as banks wait for higher returns. That was the view of Javier de Oro, the Director of Real Estate Assets at Aliseda, when he spoke to this newspaper a few days ago.

The real estate arm of Banco Popular is one of the platforms that has improved the most since the transfer of 51% (of its share capital) to the investment funds Kennedy Wilson and Värde Partners; it managed to double its rate of sales in 2014 and has been the only entity to increase its sales (volumes) during the start to 2015.

However, as De Oro says, its “goal is not to sell for the sake of it”. “I would not be surprised if the bank says “stop” at some point, “we are going to focus on returns””, commenting on a possible brake on sales over the medium term.

For the time being, the sector seems to be comfortable with the cruising speed it has obtained in terms of property sales, even though that is not reducing the (size of) its foreclosed portfolio. After all, despite a 4% decrease in the number of sales, the six largest Spanish financial institutions have maintained practically the same volume of revenues that they achieved during the first quarter last year, around €3,000 million (€2,496 million excluding Santander, which has not provided its data, but which recorded turnover of €700 million during the same period last year).

Banco Sabadell explains that this phenomenon is occurring because “discounts are being reduced” at the same time as “sales with a value of more than €100,000 are increasing”.

Moody’s warns that the banks’ total exposure to property, which includes not only foreclosed assets, but also loans to property developers and real estate companies (susceptible to becoming new foreclosures), amount to €300,000 million.

“Only if the tepid recovery of the real estate market in 2014 gains momentum will the banks be capable of substantially reducing the very high stock of problem real estate assets”, say the analysts.

Data by entity – Q1 2015

CaixaBank

The Catalan entity, which sold 51% of its real estate arm to the fund TPG, leads the ranking of transactions in Q1 with the sale and rental of 5,029 of its own properties for €498 million (of which €216 million relates to rental) and 5,638 transactions (€962 million) including assets from property developers (down by 10% versus 2014).

Popular

The sale of 51% of Aliseda to Kennedy Wilson and Värde Partners enabled Popular to increase its sales by 48% to 2,780 own properties, for which it recorded turnover of €525 million.

BBVA

BBVA’s real estate arm, Anida, sold 4,094 properties (2,105 own properties), i.e. 18% fewer, for €360 million.

Sabadell

Sabadell’s platform, Solvia, has sold and leased 3,123 properties (2,559 own properties), i.e. 4% fewer for €474 million. 10% of all of its transactions relate to rental properties. The entity has improved sales of properties worth more than €100,000.

Santander

Altamira, which is 85% owned by Apollo, has sold 3,500 properties during the first quarter, which represents a decrease of 16%. Santander was the entity that began with high sales before lowering them year after year.

Bankia

The real estate arm of Bankia, which is controlled by Cerberus, has multiplied sales of its own properties: 2,086 for €197.7 million during the first quarter, compared with 822 sold (for €57 million) at the beginning of 2014.

Original story: Cinco Días (by Juande Portillo)

Translation: Carmel Drake

Spanish Banks’ Q4 Results Show Demand For Loans Picking Up

2 February 2015 – WSJ

Two Spanish lenders, Caixabank SA and Banco Popular Español SA, reported fourth-quarter results on Friday that showed an uptick in demand for loans as the country chugs toward economic recovery.

Caixabank and Banco Popular said new loans were up in the fourth quarter compared with a year earlier, led by demand from businesses in particular, while mortgage lending was less vibrant. That trend was in line with results reported on Thursday by Banco de Sabadell SA.

Still, an increase in loan issuance wasn’t enough to offset the wave of individuals and businesses that are focused on paying down their existing debts, rather than taking on new debt. The amount Caixabank lent to customers in 2014 fell nearly 5% compared with the previous year and 0.5% at Banco Popular during the same period.

Caixabank Chief Executive Gonzalo Gortázar said new loan production in 2015, particularly to businesses, is likely to be strong enough to outpace the rate at which borrowers are paying off debts. Caixabank is likely to see its total loan portfolio grow around 7% in 2015, Mr. Gortázar said at a news conference, buoyed by the acquisition of Barclays PLC’s retail banking division in Spain, which closed on Jan. 2.

“Credit is returning to the economy,” Mr. Gortázar said. “New loan production is accelerating each quarter.”

Overall in the Spanish banking system, he said, total loan volumes should stop declining and stabilize around zero or 1%.

Sabadell executives said Thursday they anticipated a turnaround this year at their bank as well, with growth in the total loan book of around 1%-2% thanks to an increase in loans to small and medium-size businesses.

The “deleveraging” process in Spain has weakened lenders’ returns in recent quarters and makes analysts anxious about future growth. But bank executives acknowledge that it is healthy for individuals and businesses in Spain to slough off layers of debt accumulated during a frenzied building boom, which went bust starting in 2008 and sunk the country into several years of recession.

Caixabank reported net profit of €154 million ($174.3 million) in the fourth quarter of 2014. The bank said it had restated its 2013 accounts because of a contribution to Spain’s deposit guarantee fund, leading to a €142 million loss in the fourth quarter of 2013.

The Barcelona-based bank said fourth-quarter net interest income was €1.08 billion compared with €1.02 billion a year earlier. That was in line with analysts’ expectations.

Caixabank shares were down 2% in early afternoon trading in Madrid. Credit Suisse Group AG analysts said in a research report that the bank’s results were “mixed,” with weak trading income and higher-than expected impairments, including €195 million of early retirement charges.

Banco Popular, Spain’s sixth largest bank by market value, reported net profit of €99.4 million ($112.5 million) in the fourth quarter of 2014, up from €79.6 million a year earlier. The bank said fourth-quarter net interest income was €570.9 million compared with €581.5 million a year earlier. Banco Popular shares were up 0.7%.

Net interest income, a key driver of revenue for retail banks like Caixabank, is the difference between how much a bank earns on clients’ loans and how much it pays clients for their deposits.

Separately, Bankia SA has postponed its 2014 annual results presentation while Spain’s bank-bailout fund, known as Frob, weighs how potential litigation expenses should be divided between the bailed-out bank and its parent company, a Bankia spokesman said Friday.

Bankia, which Spain spent €22.4 billion in European Union funds to clean up in 2012 following a real-estate bust, was set to report earnings on Feb. 2.

Spain’s bank-bailout fund Frob still owns the majority of Bankia. The bailed-out bank, Spain’s fourth-largest by market value, is plagued by lawsuits triggered by fraud allegations related to its 2011 initial public offering. Investors in the IPO suffered steep losses when Bankia was later nationalized. Executives at Bankia at the time say the share sale was above board.

The Bankia spokesman said it is unclear when the bank’s 2014 results will be rescheduled.

Original story: WSJ (by Jeannette Neumann)

Edited by: Carmel Drake

Increased Mortgage Lending Supports Spanish Property Market Recovery

21 January 2015 – Spanish News Today

Spanish banks regain confidence in real estate loans

One of the various encouraging aspects of the latest figures published by Spain’s notaries for November, in which further indications are shown that the country’s property market is at last achieving stability and even limited growth, is the increase in the extent to which residential property purchases are being financed by mortgage loans.

The notaries report that during November last year 13,857 residential property purchases were made with the aid of mortgages, 35% more than twelve months previously. At the same time, the average amount loaned by banks remained generally stable, falling by just 0.6% to €113,093 on property purchase mortgages (whilst the price of property itself fell by 1.5%).

In general terms, the notaries conclude that 40.6% of all residential property purchases last November were financed by means of a mortgage loan, the highest proportion in the first eleven months of 2014, and that in these cases the loans covered 74.9% of the total price.

It seems that as price stability becomes a reality it is not just purchasers who are becoming more confident about venturing into the market: banks also appear to be reaching the conclusion that the market is now solid enough for mortgages to represent an acceptable risk.

Original story: Spanish News Today

Translation: Carmel Drake