According to Premier Marbella news sources, SAREB, the asset management company for bank restructuring in Spain has sold since late February (when it signed contracts to manage the toxic assets of banks) to May a total of 550 properties. In addition to closed sales in the past three months, SAREB has another 800 property operations that are ongoing and pending Title deed and 2,200 properties on which there is a preliminary offer to purchase.
The partner of PricewaterhouseCoopers (PWC) responsible for real estate, Juan Velayos, believes that the price of housing in Spain “is bottoming out” and all indications are that this year and next year the trend is “flat”. However, Velayos dared not specify when property prices would rebound. Also the representative of PWC said that Spain is about to reach the “change curve” and stressed that financial institutions, the public and the management company of assets from bank restructuring (SAREB) have “an obligation to cash in and deleverage assets.”
In his view this will create “ample opportunity” in the Spanish housing market. “We are going to see something that has not been seen in recent years, which is ‘’mass transactions”. In mid-February PWC published its report ‘European real estate market trends 2013’ where the consultant claimed that forced sales of banking stock will be one of the main elements for the sector this year and also investment syndicates are preparing funds for opportunities.
On Thursday, the group of banks in Group 2, composed of CEISS, Liberbank, BMN Box3 will transfer their bad assets, valued at 15,000 million euros, Sareb. The transfer of assets from Group 2 comes after the entity has increased capital by 1,200 million euros and has embraced the entrance as shareholders Iberdrola and Banco Caminos, which contributed 2.5 million euros and 800,000 euros respectively.
On 31st of December Sareb received damaged assets from the nationalized entities, Bankia, Novagalicia Bank, Bank of Valencia and Catalunya Bank, set at a value of 36,695,000 euros. The transfer of these assets and loans associated with property will be exchanged for bonds issued by the Sareb with the guarantee of the Spanish state. The Ministry of Economy expects that Sareb will bring together approximately 55,000 million euro of assets after the completion of the transfer process of two group entities.
The entity for restructuring banks toxic assets (Sareb), the so-called ‘bad bank’, has selected KPMG to draw up a business plan for the company and will take on the task of adjusting the portfolio values to the current economic climate, as reported by financial sources. Sources have confirmed that the new business plan will keep the expected return on equity (RoE) at around 14% and 15% that was contemplated in the initial design for the 15 year life of Sareb. ‘The profitability objectives will remain the same according to guaranteed sources.The re-adjustment of the business plan was presented in the first instance to investors, which sources attribute the speed to which the ‘bad bank’ was established, to update valuations of the ‘toxic assets’.
The first estimates were made from book value on 31 December 2011. There will also be a linking of liabilities to the evolution of the business portfolio. Precisely, the ‘bad bank’ plans to absorb the Feb. 28 damaged assets of entities belonging to group 2 (BMN, Liberbank, and Box3 CEISS Bank), its capital will be raised to 1,200 million euros, following the entry of two new partners: Iberdrola and Banco Caminos.
BBVA ‘Research’ believes that the huge stock of homes for sale in Spain will be reduced “modestly” this year, in the wake of 2012. However, it considers that the adjustment for the supply side has been “significant”, and could be close to an end as a result of the “strong” reduction in the number of new housing projects and employment in this sector. BBVA finds a “strong” dynamics in housing demand by foreigners and believes that it could be further strengthened this year, “once the uncertainty in financial markets has dropped and the will be a greater appetite for risk”.
However, the bank president Francisco Gonzalez adds that these factors do not mean that in the coming years there will be a “vigorous” investment recovery, as the cumulative oversupply remains important “but that adjustment is being corrected”. In fact, residential investment is estimated to contract by around 8.3% in 2013. According to the banks estimates, it will be from 2014 when the market begins to record positive growth rates but moderate (+2.1% for the full year), after seven years of declines and a cumulative contraction of over 50%. BBVA also indicates that the real estate industry will face new circumstances that will add uncertainty such as the restructuring of the financial system, the implementation of the Sareb, eliminating tax breaks for the purchase and the increase in VAT on housing reform tenancies Act and the new regulations for Socimi.
Ireland may be the mirror which Spain is set to use to evaluate the evolution of its Bad Bank. Ireland set up the National Asset Management Agency (Nama) three years before the Spanish Bad Bank (Sareb) and the two entities have been created under the supervision of the European Union (EU). Some of the major similarities and differences between Nama and Sareb are: The Irish Bad Bank began only with toxic loans, while Sareb started with loans, property, ongoing developments and plots.
In addition, the Irish bank started with a smaller number of mortgages, which implies a lower management difficulty compared to Spanish entity. The Spanish bad bank will be the largest European real estate, by far.
As for the structure of assets there are substantial differences, according to International Financial Analysts (Afi). Nama started with no foreclosed assets, only loans that financed land, property developments in progress, and property.
Specifically, the distribution of the initial portfolio of Nama in November 2009 was: 19% of loans on land, 10% in developing real estate and 71% on finished product, of which 23% was in housing, 22% in offices, 20% in retail, 15% in hotels, and the rest in other real estate assets.
Housing loans accounted for 16.3% of the total, whilst Sareb has begun its journey earlier this year with an approximate burden of 20% in foreclosed properties of which 85% is concentrated in housing. The balance being loans whose net book value exceed 250,000 € calculated at borrower level.
As for the total number of loans, in its infancy Nama had fewer mortgages than that of its Spanish equivalent Sareb. Specifically, the number of loans with Nama is 772 and although no specific data is available, (Afi) estimates that the number with Sareb could reach 150,000.
Another difference between the two banks is that Nama has a greater geographic concentration than Sareb. 54% of the total portfolio is in Ireland, 32% in England, 4%, in Northern Ireland, Scotland 1%, other 1% in Wales and the remaining 8% elsewhere. The greatest concentration of loans to build took place in the cities of Dublin and London. However, the geographic distribution of Sareb’s assets is much more diversified. With 49% of the total concentrated in the province of Madrid, Barcelona and Levante. This implies greater difficulty of managing and finding an exit for the property assets.
The bad bank, dubbed Sareb, has become a massive real estate. The entity has begun with a volume of 36,700 million euros in real estate assets from the four nationalized entities. It is expected to reach 65,000 million in 2013 when more assets from other troubled banks are transferred. This portfolio is twice that of the Irish bad bank Nama and stands as the largest European real estate, according to figures from International Financial Analysts (AFI)
There are 5495 homes, garages and commercial units that the Galician bank repossessed for non-payments by their owners (private sector and promoters), according to information gathered by its real estate division.
The bank which is presided over by José María Castellano has transferred mostly residential properties of which 2.629 consist of apartments, houses, villas and lofts. The vast majority are new: – 1,967 represent apartments of the total 2,283 which Sareb already have on sale. The same applies with the villas and townhouses: – of the 282 buildings of this type which Sareb already owns, 229 have never been sold.
The 64 lofts which were passed over by the NCG are also new. The volume of real estate assets transferred to the ‘Banco Malo’ are evidence of the volume of lending to developers by the NCG.
The intention of Sareb is to start promoting all the assets it has received from the nationalized entities, an estimated 89,000 homes initially released to the market at low prices, but it is unclear the method to be used in calculating the discounts.
The Government has undertaken the creation of the Spanish bad bank (SAREB) thinking of applying a good dose of the medicine that the Irish government injected into their bad bank (NAMA) but probably they should apply a harder cure.
The objectives of the Irish and Spanish vehicles are similar and consist of allowing troubled banks in each country to release their toxic real estate assets. Like the NAMA, SAREB begins its journey on charges seemingly contradictory to overpay for the assets it buys from financial institutions and the depression that will occur in the housing market by purchasing cheaply.
While NAMA acquired from Irish banks 13.5% of their loan portfolios, SAREB will buy from Spanish banks 8% of total loans they have on their balances.
The Government considers that the Spanish banking crisis is of a lesser scale than that of Ireland, where the major national banks were nationalized. By contrast the two largest banks in Spain, Santander and BBVA exceeded the capital stress tests and in consequence together with a few other banks will not transfer assets to the SAREB.
But some analysts believe consider the SAREB is too small and that certain banks have managed to avoid ‘the business stain’ to transfer assets to the bad bank at the cost of maintaining the so-called “zombie lending” – those loans that have been refinanced unsustainably to balance their sheets and appear healthy.