Sareb’s Investors Will Lose 30% Of Their Investment

7 April 2017 – Expansión

Sareb, the bad bank that took over most of the toxic real estate assets from the banks intervened by the State through the Frob, announced a substantial modification to its business plan last week. The change represents an acknowledgement of the fact that, at the end of the entity’s life, in 2027, its shareholders will have lost 30% of their initial investment, almost €1,440 million. As such, the shareholders are going to have to recognise provisions for that impairment this year.

The creation of Sareb (which began operating in 2013) was conducted after the State received European aid to clean up the domestic financial system. It was not possible before because the Treasury did not have sufficient funds to do launch the initiative alone.

In an attempt to ensure that the State’s contribution would not add to the public deficit, a procedure was carried out whereby the private banking sector, insurance companies and some real estate companies contributed most of the necessary own funds (55%) and the Frob contributed the remaining 45%. This meant that in total, €4,800 million was contributed, €1,200 million in the form of capital and €3,600 million in the form of subordinated debt, convertible into capital, which would receive a relatively high remuneration if the company were to generate profits.

Sareb obtained the other resources required to pay for the real estate assets acquired from the banks in difficulty, by issuing debt over one, two and three years, which the entities from which the assets had been acquired were obliged to subscribe to and which is now being renewed for equal periods as it matures, but in reducing amount thanks to Sareb’s ability to generate funds to repay it.

All of the private banks, with the exception of BBVA, answered the call of the economic authorities and invested on the basis of their size. Santander put €805 million in the pot; CaixaBank, €581 million; Sabadell, €321 million; Popular, €276 million, and Kutxabank, €122 million. The other entities contributed smaller but no less representative amounts, based on their size.

Initially, the business plan forecast that the entity would become profitable after five years and it was stated that the company would generate an annual return of 14% over the course of its 15-year life. (…).

When the President of the entity, Belén Romana, was replaced by Jaime Echegoyen, that long-term business plan was modified to try to bring it closer to the reality of the problem assets whose orderly exit is complicated and whose profit generating ability is pretty much impossible.

The Ministry of Economy decided that the supervisor of Sareb’s accounts should be the Bank of Spain because the assets had come from financial institutions and because a large part of them were essentially problem loans. The supervisor established some very strict accounting standards regarding provisions (…), which forced the bad bank to register losses from its first year onwards, which reduced the level of capital subscribed by the shareholders by the same proportion. (…).

The evolution of the market and of Sareb itself have meant that, again, a revised business plan is being prepared to reflect the latest reality, which, according to the statement made to shareholders last week, not only completely abandons the plans for Sareb’s owners to obtain any returns from the risk they have borne, but also recognises that the total liquidation of the assets will result in losses of around 30% on the capital and debt invested. In other words, the investors will recover €3,360 million at most and will certainly lose €1,440 million. The Frob stands to lose the most: almost €650 million.

Most, if not all of those who invested in Sareb understood that they were providing a service to the country and that obtaining any returns was very unlikely and that there may be losses at the end of the process. Losses that they would recognise when the time came.

But the situation has now changed. This latest announcement means (….) that the shareholders have no choice but to recognise provisions for the losses announced this year. That means a new effort for the banks, some of which are already very stretched in terms of their provisions for this year.

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Sareb Has Returned €1,000M Assets To Banks

24 June 2016 – Expansión

In recent years, Sareb has found itself with an unexpected line of business as it works to slim down its balance sheet: it has been returning certain assets to the entities that transferred them to it initally. The company chaired by Jaime Echegoyen (pictured above) has returned more than €1,000 million in real estate assets and loans linked to the property sector to groups that transferred it the assets in the first place.

Those €1,000 million represent 2% of Sareb’s balance sheet upon creation – €50,781 million – and 13.5% of the total reduction in its asset value since 2012.

The assets have been returned due to information or appraisal deficiencies made by the transferring entities, at the time of transfer, between 2012 and 2013. Thus, some assets were transferred to Sareb with values that exceeded their real values and other should not have been transferred to the company at all, as they did not meet the requirements.

Financial sources consulted indicated that some personal loans were transferred to Sareb, which had nothing to do with the purpose of the company.

According to Sareb’s annual reports, corrections are made to asset purchase deeds “for the purposes of identifying the improper categorisation of assets, changes in the perimeter and errors or variations in the estimated valuation on the transfer date”.

Bond returns

With these properties and loans, the entities have returned €1,000 million in bonds that they received in exchange for their assets. (…).

Sareb was created at the end of 2012 from the assets of all of the entities that received public aid during the European bank rescue. Firstly, the banks controlled by the Frob – Bankia, Catalunya Banc, Banco de Valencia, NCG Banco and Banco Gallego – transferred their properties and developer loans, and then those entities that had received aid but not been nationalised –Liberbank, Caja 3 and Banco Ceiss, together with BMN– transferred their assets.

Of all of these entities, Catalunya Banc has received the most assets (in return) from Sareb over the last three and a half years. The entity absorbed by BBVA has now been returned €365 million in total, mainly between 2013 and 2014. CB is followed in the ranking by NCG Banco – now Abanca – with €182 million; Bankia with €168 million; and Banco de Valencia – purchased by CaixaBank – with €161 million.

By year, the most active period in terms of property and loan “adjustments” was 2014, when Sareb returned almost €550 million worth of assets to the entities. But the real estate company is still finding problems with the homes and loans that it was transferred, and this year it has already sent back assets worth almost €60 million to Liberbank, Bankia, Caja 3 and Banco Ceiss. (…).

A new tool

Recently, Sareb launched a new internal tool to help it handle all of the assets that it has on its balance sheet and expedite their transfer. It is called Atlas and it performs more than 300,000 valuations each year, automatically, cross checking market data with socio-economic indicators, such as rental income and population size in each place. (…).

Original story: Expansión (by J. Zuloaga)

Translation: Carmel Drake

Sareb Sold 15,000 Assets In 2014

5 February 2015 – Expansión

The Asset Management Company for Bank Restructurings (Sareb) sold around 15,000 real estate assets in 2014, in addition to the 9,000 properties it sold in 2013, according to provisional data released by the company.

Sareb’s Secretary General, Óscar García Maceiras, provided this information on Wednesday during a conference entitled “Sareb’s role in the economic recovery” held in Valladolid, organised jointly by the Business Forum of Castilla y Leon and the Schola Foundation.

In his speech, García Maceiras highlighted the “full capacity” that society has shown to contribute to the clean up of the Spanish banking sector and the reactivation of the real estate sector.

In the two years since it was created, Sareb has generated turnover of more than €8,000 million and has sold more than 24,000 properties (homes, land, adjoining garages/store-rooms and tertiary assets), of which more than 15,000 were sold in 2014, according to provisional data released by the company.

García Maceiras said that this “dynamism” has allowed the company to fulfil “its primary mission”, namely the repayment of the debt issued by Sareb and backed by the State.

In this regard, he added that during its first 24 months, Sareb has repaid €5,000 million and has paid interest amounting to €2,400 on that debt, “and so has reduced the cost to the taxpayer of the financial restructuring by €7,400 million”.

During the conference, Sareb’s Secretary General reiterated the company’s commitment to the real estate sector and noted that in two years, Sareb has handled “more than 18,700 developer proposals, including the sale of collaterals, deeds in lieu, restructurings, disposals and other transactions”.

García Maceiras also highlighted the main challenges facing the company today, including the culmination of the change in its commercial managers, which, once the process for migrating assets has been completed, will be Altamira, Haya Real Estate, Servihabitat and Solvia.

Sareb is a private entity, created in November 2012, to help with the clean up of the Spanish financial sector and of the institutions that received state aid, explained the Company in a press release.

Sareb is committed to proceeding with the liquidation of the properties and loans it has purchased before November 2027.

Original story: Expansión

Translation: Carmel Drake