Liberbank’s RE Clean-Up Exercise Echoes Santander’s Deal For Popular

30 October 2017 – Expansión

Liberbank has learned the lesson that Santander taught the market a few months ago when it teamed up with Blackstone to divest almost all of the damaged real estate risk that Popular had held. The bank led by Manuel Menéndez has now also joined the trend of selling most of the capital of a new company, but retaining a stake in it so as to benefit from the future recovery in real estate prices.

The entity, which has just launched a capital increase amounting to €500 million, has also announced that it has created a company using real estate assets that have a book value of €602 million; Bain Capital will own the majority stake (80%), and the remaining 20% will be shared between the bank itself, with a 9.9% stake, and Oceanwood, with a 10.1% stake. Oceanwood is an investment fund that is the largest individual shareholder in Liberbank, with a stake of just over 12%, after the stakes held by banking foundations that gave rise to the entity.

Under pressure

The European supervisory authorities and the main international investment funds are putting pressure on the European banks to divest their toxic assets as soon as possible in order to recover the profitability lost in recent years, having overcome the worst of the financial crisis (…).

When Santander purchased Popular for €1, the first decision that it made public was that of putting all of Popular’s problematic real estate assets up for sale.

To that end, it decided to increase the coverage ratio of those assets to more than 60%, charging it against Popular’s reserves, to allow it to find a buyer more easily. In the end, it decided to accept Blackstone’s offer, which valued the entire real estate portfolio at €10,000 million and which saw the investment fund acquire 51% of the new company and Santander hold onto the remaining 49%. For Santander, the operation was attractive because it allowed it to immediately recover €5,100 million, it removed Popular’s real estate risk from the balance sheet and it left the door open for the entity to recover more money in the future to the extent that Blackstone proceeds to sell the new company’s assets.

Liberbank has done the same, although in a smaller proportion. In its case, the volume of assets is substantially smaller, €602 million compared to €30,000 million in Popular’s portfolio; moreover, its share of the new real estate company is also much smaller; it will be left with a 9.9% stake, whilst Santander owns 49% of its company.

But the result is similar. Liberbank is removing a very significant percentage of the damaged real estate risk from its balance sheet by the same means as Santander did. Raising the coverage ratio of these assets to a sufficient percentage so that an investment fund like Bain Capital Credit, and also Oceanwood, are willing to invest a not inconsiderable amount of money.


If the valuation of Liberbank’s assets is the same as those of Popular, Bain and Oceanwood will have invested just over €230 million in the operation.

A notable difference with respect to Popular’s operation is that there is a third player in Liberbank’s case. The fund Oceanwood, the bank’s largest shareholder after the banking foundations, which has also committed to participating in the capital increase in an even higher proportion to the amount that corresponds to it based on its current stake, has also decided to form part of the new real estate company, which will be constituted as a Socimi. Those two decisions may be interpreted as a clear commitment that the entity will be worth more in the future than it is at the moment and as a clear vote in favour of the current management team (…)

Original story: Expansión (by Salvador Arancibia)

Translation: Carmel Drake

Caixabank Will Need 6 Years To ‘Digest’ Its Toxic Assets

2 February 2015 – Voz Pópuli

Caixabank’s real estate arm generated losses of €1,148 million in 2014. The volume of foreclosed assets increased to €6,719 million, above the figure in 2013. The entity did improve its coverage levels. However, profitability barely reached 2.7%.

Caixabank’s surfeit of toxic assets peaked at close to €30,000 million. It managed to trim that down to €20,110 million by the end of 2014. However, progress continues to be slow. The entity forecasts that its balance of doubtful real estate assets generated during the real estate boom will not be fully run down for another six years, if the current pace of asset sales is maintained.

The entity chaired by Isidro Fainé marketed 23,400 properties for rental and sale in 2014, which resulted in turnover of €2,512 million (i.e. a 15% increase for rentals and a 28% increase for sales). If we add the properties marketed by developers that are financed by Caixabank, these figures increase to 35,870 properties and turnover of €5,432 million. However, this intense activity generated losses of €1,148 million for the real estate division, a business that has a delinquency rate of 58.7%. The entity’s overall delinquency rate is 9.7%, having dropped down from double-digit levels last year.

Caixabank succeeded in reducing its default rate by two percentage points during the course of the year, to 9.7%. This reduction was made possible by the fact that the decrease in doubtful debts was greater than the contraction in new credits, which dropped by 4.8% during the year. Even so, the bank led by Gonzalo Gortázar emphasised the changing trend observed in the last quarter of the year, and the fact that its credit balance rose by 1.4% compared with the same period in 2013. Nevertheless, it does not expect credit balances to grow in the sector in 2015.

A two-phase approach for getting rid of toxic assets

Caixabank’s exit from this stock of toxic assets (€20,110 million) will take place in two stages. Over the next two years, its real estate business will continue to make significant losses, which will weigh down on Caixabank’s income statement, explains its CEO, Gonzalo Gortázar. The largest impact on the balance sheet will take place in 2017 when the doubtful properties become foreclosed assets. “On average, it takes 4 years to sell a foreclosed property”, explained Gortázar.

As at 2014 year-end, Caixabank had €6,719 million foreclosed assets, a little over €650 million more than at the end of 2013. This increase is explained in part by the decrease in doubtful assets. The Catalan entity recorded four consecutive quarters of declining doubtful assets. These foreclosed assets had a coverage ratio of 55%, 140 basis points more than at the end of 2013.

In terms of solvency, Caixabank closed 2014 with a core capital ratio of 13.1% (measured in accordance with the Basel III framework), an increase of 128 basis points on the previous year. The fully loaded ratio, with all the deductions that will apply in the near future until 2019, was 12.3%. Nevertheless, these good results contrast against an excessively low level of profitability. Caixabank’s ROE stood at 2.7% at the end of December, a long way off of the ratios recorded by other entities, such as Bankia, which recorded a ratio of 8.4% at the end of September.

Indeed, the quest for profitability will be one of the main priorities of the strategic plan that the entity will present in London on 3 March. The market is now expecting entities to record double-digit ROEs.

Original story: Voz Pópuli (by Miguel Alba)

Translation: Carmel Drake