NPL&REO News

Spanish companies are now better prepared to cope with the crisis

Spanish companies are better prepared to face the disruption from the coronavirus pandemic than when the global financial crisis hit, although some vulnerabilities persist, the Bank of Spain governor said.

Spain’s central bank said in its latest financial stability report that risks to global financial stability had increased but measures taken at national and European should help mitigate them.

«Spanish households and non-financial companies are facing this situation with a significantly more favourable financial position than before the global financial crisis,» Bank of Spain governor Pablo Hernandez de Cos said in a separate statement commenting on the central bank’s report.

De Cos, who is also a member of the European Central Bank governing council, said the better relative positive position of Spanish companies was mainly a result of the substantial reduction of their debt in recent years, which is now below the European average.

However, the Bank of Spain said the contraction of the economy in the second quarter would be significantly higher than in the previous quarter, when it showed a quarterly record decrease of 5.2%.

The Bank of Spain also said that the COVID-19 pandemic had lead to an increase of the cost of risk – or the cost of insuring a loan – in banks’ exposures to companies. The challenges for lenders were significant due to the magnitude of the shock in the short-term.

Against this backdrop, the Bank of Spain said that despite the significant reduction in bad loans since 2014, the non-performing loans ratio was still above pre-crisis levels and would experience an increase thus further eroding the bank’s already battered profitability ratios.

Original Story: Reuters| Jesus Aguado, Emma Pinedo
Photo: Photo by Pablo Rodríguez from FreeImages
Edition: Prime Yield

European banks expected to suffer a €380 bn hit due to pandemic

European banks are expected to duffer a hit of up €380 billion to their capital due to the economic disruption from coronavirus pandemic, but most should be able to absorb the losses, according to the European Banking Authority (EBA).

EU’s banking watchdog said it had carried out a “sensitivity analysis” based on the results of its 2018 stress test of the sector to determine the likely increase in nonperforming loans (NPL) and increased riskiness of their loan books because of the virus emergency. 

The share prices of many European banks have fallen almost 50% this year as investors have anticipated how the economic and financial turmoil caused by the pandemic will hurt their weak profitability and may force some to raise extra capital. 

However, “The starting position of the banks [was] very good at the end of last year [and] the measures put in place since the last crisis have held up”, José Manuel Campa, chairman of the EBA, told the Financial Times.

“As a result of all that, the buffers are large and should be sufficient in the short term so we are not worried about [the banks’] short-term ability to lend to the economy and in the long term to have sufficient buffers to absorb the eventual losses,” he added. 

Assuming an increase of between €169 bn and €291 bn in bad loans at the biggest eurozone banks, the EBA said the hit to their capital would be accentuated by an overall increase in the likelihood of borrowers to default. 

The watchdog’s estimate for the capital likely to be wiped out by the crisis ranged from 2.3 to 3.8 % of banks’ total risk-weighted assets — the main way they measure how much capital they need. Every percentage point of risk-weighted assets is worth about €100bn of capital. 

At the end of 2019, banks had capital equivalent to nearly 15 per cent of their risk-weighted assets — roughly 3% above the level required by regulators. Several measures introduced by regulators in response to the virus have provided banks with capital relief equivalent to about 2% of risk-weighted assets. 

The FT reported this year that European Central Bank officials have held high-level talks with counterparts in Brussels about creating a eurozone bad bank to remove billions of euros in toxic debts from lenders’ balance sheets — but the plan has faced opposition from some EU governments. 

The EBA, which postponed a planned stress test of the sector until 2021 because of the virus, said: “As the crisis develops, banks are likely to face growing non-performing loan volumes, which can reach levels similar to those recorded in the aftermath of the sovereign debt crisis. 

“Capital levels should help banks withstand the impact of Covid-19,” it said, adding: “There could be weaker banks (those with pre-crisis problems or heavily exposed to the sectors more affected by crisis) facing more severe challenges.” 

Total NPLs in the biggest 121 eurozone banks had more than halved in six years to €506bn, or 3.2% of their loan books, by the end of last year. But Greek, Cypriot, Portuguese and Italian banks still have NPL ratios above 6%. 

The watchdog said that 18 per cent of European bank loans were to companies in sectors expected to be hardest hit by the disease, including hotels, restaurants, manufacturing, electricity and transport and storage.

However, it said there were a number of caveats to its estimates, including the government guarantees and moratoria being offered on bank loans in various countries, which could shield lenders’ balance sheets from the impact of the crisis. 

It warned that its analysis was only for credit risk, and there could be “additional losses from market, counterparty and operational risk”. It added it had not taken account of the rise in bank lending since the start of this year, as many companies drew down credit facilities.

Original Story: Financial Times | Martin Arnold and Stephen Morris 
Photo: Photo by Szymon Szymon for FreeImages.com
Edition: Prime Yield

Bankia net profit falls 54% in Q2 due to Covid-19 provisions

Bankia, Spain’s fourth-largest bank by assets, reported a 54% drop in first-quarter net profit hut by higher provisions and lower net interest income. The bank set aside a provision of €125 million to protect its balance sheet and support its customers against the fallout from the COVID-19 disease.

In the January to March quarter, Bankia reported a net profit of €94 million in the January to March quarter.

Bankia, like rival Santander SAN.MC and others, has been taking steps to counter risk as the global economy reels due to the coronavirus crisis.

Like many other European banks, Spanish lenders are also struggling to increase earnings on lending due to low interest rates.

Bankia’s net interest income, or earnings on loans minus deposit costs, fell 8.7% to €458 million. Analysts had forecast it at €473 million.

At the end of March, Bankia had a core tier-1 capital ratio – the strictest measure of solvency – of 12.95% versus 13.02% at end-December, while its non-performing loan ratio stood at 4.9%, down from 5%.

Original Story: Nasdaq|Jesus Aguado
Photo: Bankia Site
Edition:Prime Yield

Spanish real estate prices fell 1.1% in February year-on-year

The number of properties sold in Spain in February dropped 1.1% year-on-year and 5% compared to the previous month, according to latest figures from the National Statistics Institute (INE).

In last data to be collected before native transmissions of the coronavirus hit Spain, the residential sector fared worse month-on-month, down 6%, though year-on-year it gained 0.1%.

Spain’s property market has had a rollercoaster two decades, with a slow but steady recovery in the past eight years as it emerged from a near six-year recession provoked by the explosion of a real estate bubble in 2007.

The autonomous regions of Catalonia and Madrid, both real estate powerhouses, saw their property sales stumble 4.4% and 3.2% respectively year-on-year for February.

The two regions registering the steepest annual drop in property sales for the month were La Rioja at 36.4% and the Basque Country at 20.7%.

However, sales ballooned between 8% and 12.7% year-on-year in the Balearic Islands, Andalucia, and Aragon.

The nationwide rate of property transfers, for its part, slackened by 1.1% compared to the same month last year, representing a compound annual fall of 2.9%.

Meanwhile, Madrid and Catalonia saw property transfer rates tumble 8.2% and 6.2% respectively relative to February 2019.

Original Story: Reuters |Clara-Laeila Laudette, Belen Carreno and Jesus Aguado 
Photo: Photo by Philipp K for FreeImages.com
Edition: Prime Yield

Spain’s banks overwhelmed with requests for mortgage relief

Banks are being overwhelmed with requests from customers for mortgage payment holidays to help mitigate the impact of Spain’s coronavirus epidemic, which has led to hundreds of thousands of job losses during a strict lockdown.

Lenders have declined to say how many requests they have had, but banking staff told Reuters they had been inundated.

«We have received 2,000 queries as of last week, » said a head of client solutions at a top-five Spanish bank, who did not want to be named because of the sensitivity of the topic.

Many did not meet even «the most basic conditions» for mortgage relief set by the government, the source added.

He said the bank was trying not to lose clients who were meeting their payment obligations before the crisis and offering them options such as six-month extensions to the terms on their mortgages.

Mortgages represent around 40% of Spanish banks’ gross loans, accounting for close to €500 billion, according to Bank of Spain data.

Another retail banker at a leading lender said it had received more than 1,000 queries through online channels in just one day and staff were ill-prepared to deal with that number.

The Spanish Mortgage Association estimates that there were around 7 million residential mortgages by the end of 2019.

On March 31st  – as part of an ever widening raft of economic support measures in a country where the virus infected and killed thousands and paralysed the economy – the government extended the mortgage payment holiday entitlement for eligible customers to three months. 

However, tough qualifying conditions – such as the mortgage payment having to be more than 30% of household income, limits on the level of that income and workers having to present certificates proving they are unemployed – means many may not be able to take advantage.

«With these harsh conditions the (payment) moratorium is doomed to fail» said Manuel Pardos, head of Spanish consumer group Adicae.

Original Story: Reuters | Jesus Aguado 
Photo: Big Stock Photo
Edition: Prime Yield

Bank of Spain predicts economy to shrink up to 12.4% this year

Spain’s economy could shrink as much as 12.4% this year if its coronavirus lockdown lasts 12 weeks, before staging a vigorous recovery of at least 5.5% in 2021, the Bank of Spain said 

The Spanish central bank said the disruption suffered by the economy was, as in other countries, of «considerable severity», although there was still great uncertainty as it charted various scenarios depending on the length of the lockdown.

Its best-case scenario, based on the assumption that measures to prevent mass closure of businesses and lasting unemployment work out and the lockdown that began in mid-March lasts eight weeks, pointed to a 6.8% contraction.

The central bank said that tourism, which accounts for around 12% of Spain’s gross domestic product and 13.5% of all employment, would be particularly hard-hit by the pandemic.

«The high contribution of tourism to GDP and employment, in a context where these sectors are suffering disproportionately from the consequences of the pandemic, contributes to the fact that the prospects of the Spanish economy have been particularly affected,» it said.

If companies’ liquidity shortages turn into solvency problems in an eight-week lockdown, which the central bank saw as the most probable outcome, the Spanish economy could contract 9.5% this year, or 12.4% if the lockdown lasted 12 weeks.

In its worst-case scenario, it expected the unemployment rate to hit 21.7% this year, easing to 19.9% in 2021.

According to the International Monetary Fund, the euro zone economies should contract by 7.5% in 2020, forecasting an 8% contraction in Spain.

The Bank of Spain said that, in any case, an upturn was expected to begin in the second half of the year, leading to a «remarkable recovery» in 2021, with a projected growth of between 5.5% and 8.5%.

The central bank also predicted a budget deficit of between 7.2% and 11% of gross domestic product in 2020, improving to 5.2%-7.4% of GDP the following year. It said Spain’s debt-to-GDP ratio would rise to 122.3% in 2020 in the worst-case scenario.

Original Story: The Guardian| Jesus Aguado and Emma Pinedo (Reuters)| 
Photo: Photo by Xexo_Xeperti /FreeImages.com
Edition:
Prime Yield

ECB officials push up the creation of a eurozone bad bank

The European Central Bank have held talks with counterparts in the European Comission about creating a eurozone bad bank to remove billions of euros in toxic debts from lenders’ balance sheets, the Financial Times reveals.

According to the newspaper, the plan to deal with debts left over the 2008 financial crisis is being pushed by senior ECB officials, who worry the coronavirus pandemic will trigger another surge in non-performing loans (NPLs) that risks clogging up banks’ lending capacity at a critical time.

However, the idea faces stiff opposition within the European Commission, where officials are reluctant to waive EU rules requiring state aid for banks to be provided only after a resolution process imposes losses on their shareholders and bondholders.

«The lesson from the crisis is that only with a bad bank can you quickly get rid of the NPLs,” Yannis Stournaras, governor of the Bank of Greece and member of the ECB governing council, told the Financial Times. «It could be a European one or a national one. But it needs to happen quickly».

Greek banks have by far the highest level of bad loans on their balance sheets of any eurozone country, making up 35% of their total loan books — a legacy of the 2010-15 debt crisis. They have cut their bad loans by about 40% in four years, under heavy pressure from the ECB. But plans by Greece’s big four lenders to sell more than €32bn of NPLs — almost half the total in the country — are likely to be disrupted by the coronavirus crisis, and Mr Stournaras said the best way to quickly fix their balance sheets is now via a bad bank.

ECB officials have also held talks with the commission’s department for financial stability and capital markets. Senior EU officials have pushed back on the idea, arguing there are better ways to tackle toxic loans, but declined to give further details.

The high-level talks were in their infancy and had been premature, said people with direct knowledge of them.

However, people following the discussions inside the commission did not rule out their resuming at a later stage of the pandemic.

Andrea Enria, chair of the ECB’s supervisory board, proposed the idea of an EU bad bank in early 2017 when he was still head of the European Banking Authority. His idea was blocked by Brussels’ officials citing state-aid rules — but he is now trying to get the plan off the ground again, said people briefed on the matter. The ECB declined to comment.

Total NPLs in the biggest 121 eurozone banks almost halved in four years to €506 bn, or 3.2% of their loan books, by the end of last year. But Greek, Cypriot, Portuguese and Italian banks still have NPL ratios above 6%.

In March, the commission adopted a temporary relaxation of state-aid rules and has since waved through billions of euros in emergency government relief measures. Brussels is also finalising plans alongside member states to allow countries to inject equity directly into struggling businesses, though in return they will be restricted from paying dividends or bonuses while in receipt of state aid. 

Proponents of the bad bank idea hope to make it acceptable under state-aid rules by proposing that the toxic loans would have to be sold into the market after a fixed time period, with the power to recoup any losses from the lenders themselves.Spain, Ireland and Germany all set up state-backed bad banks after the 2008 financial crisis to deal with sudden increases in toxic bank debt. But since then, the EU has introduced the bank recovery and resolution directive, which restricts governments from setting up bad banks except as part of an official resolution process.

Original Story: Financial Times| Martin Arnold and Javier Espinoza
Photo: Photo by Szymon Szymon for FreeImages.com
Edition: Prime Yield

Spanish and Italian lenders hit the most by the pandemic effects

Analysis of recent bank reviews by ratings agency Fitch – in banking markets previously identified by GlobalData as vulnerable to COVID-19 disruption – shows that Spanish and Italian lenders are most likely to suffer from the ongoing market turbulence, writes Katherine Long, an associate analyst for GlobalData Financial Services, Retail Banking.

As Covid-19 spreads throughout the world, GlobalData identified that banking markets in Europe, China, and Canada are most likely to be disrupted.

Similarly, in the last month, a large number of ratings actions have been taken against lenders in these countries by Fitch. Most actions have resulted in either downgrades to long-term issuer default ratings, a negative outlook, or ratings watch. 

And while it was stressed that the likely deterioration in asset quality would occur for virtually all reviewed banks, there were noticeable differences in each market. 

GlobalData has shown that the Spanish and Italian banking markets have seen the largest number of warnings issued while also currently having the lowest default ratings.

Spanish banks such as CaixaBank, Banco de Sabadell, and Bankia remain overexposed to various risky sectors. 

Conversely, lenders such as Ibercaja, Abanca, Grupo Cooperativo Cajamar and Liberbank have been plagued by low profitability, asset quality pressures, and poor capital positions.

Meanwhile, banks in Italy such as the famous Banca Monte dei Paschi di Siena, as well as Banca Carige and Iccrea Banca, enter the Covid-19 crisis already weakened. 

Poor asset quality and lack of profitability had already damaged their ‘commercial effectiveness.’ Other banks such as Banca Popolare are too regionally centric, making them vulnerable to local industries such as tourism. 

Similarly, German banks such as Deutsche Bank and Commerzbank, while stronger than banks in Italy, have also been going through a period of restructuring, leaving them in a weak position as well before the effects of Covid-19 have struck.French and Canadian banks, however, such as BNP Paribas, HSBC Canada, and Bank of Montreal, while considered robust, are still expected to suffer worsening asset quality. This is particularly the case if they are overexposed to sectors such as oil and gas, equity investments, and residential property, which are expected to suffer this year.

Original Story: Leasing Life |Verdict Staff
Photo:Photo by Pablo Rodríguez from FreeImages
Edition: Prime Yield

Spain guarantees up to 80% of SME bank lending to ease coronavirus impact

Spain’s government outlined its burden-sharing scheme for banks as part of state-backed credit lines to help companies limit the impact of the coronavirus crisis, releasing an initial tranche of €20 billion.

The measures are part of a total of €100 billion in state-backed credit lines approved in late March, embedded in an unprecedented, wider €200-billion package.

«The government hopes that these measures will help companies to better weather the negative effects triggered by this health emergency, » government spokeswoman Maria Jesus Montero said.

With nearly 205,000 coronavirus cases and 21,300 deaths, Spain is Europe’s worst-hit country.

Banks have been awaiting the details of credit lines before starting to grant loans to businesses that have already started to temporarily lay off thousands of employees to withstand a near standstill in activity.

As part of the scheme, the state will guarantee around 80% of unpaid loans to self-employed workers and small and medium-sized companies, which represent the bulk of Spanish businesses. These two categories will receive half of the first tranche in credit lines.

The guarantees will cover new or renewed lending but not restructured loans, as had been demanded by lenders.

For bigger companies, the guarantees would cover 70% of potential losses from new loans and 60% of unpaid renewed credit lines. The guarantees would be for up to five years.

Montero said that interest price policy on loans had not been agreed with banks as «the biggest problem is not interest rates but sharing the risk».

In Germany, for example, the government is offering an unlimited volume in loans through the KfW bank that was founded to finance the country’s rebuilding after World War Two.

The loans are 80% guaranteed by the government for larger companies with more than 250 employees, and up to 90% for smaller companies.

European governments are scrambling to put together spending packages to mitigate the blow from the coronavirus pandemic, while the European Central Bank has promised emergency action to buy more than a trillion euros in bonds to support the economy and is offering loans for banks to pass on to small businesses.

Original Story: Reuters |Jesus Aguado and Emma Pinedo, Belen Carreño and Tom Sils 
Photo: Photo by Victor Iglesias from FreeImages
Edition: Prime Yield

Blackstone and Cerberus record losses with residential acquired from Banks

Blackstone and Cerberus are losing money from the residential portfolios acquired from Santander and BBVA, which have generated millionaire losses to the funds. On the contrary, Lonestar, however, is obtaining benefits of €6.4 million from the assets it bought from Caixa Bank.

Quasar Investments, the society established by Blackstone, acquired dwellings, land and non-performing loans from Santander for a net value of €10 billion, in a deal that generated red numbers of €714 million in the last year’s accounts. Santander still co-owns 49% from the company and had recorded losses of €350 million.

The losses shared by Cerberus and BBVA stood around €48 million, even though it wasn’t as pronounced for the entity, since it only holds 20% from Divarian, the jointly created company.

Original Story: EJE Prime | NEWS
Photo: Site Cerberus
Edition & Translation: Prime Yield

Billions at stake for Spanish banks in top EU court’s mortgage ruling

Spanish banks could face billions of euros in compensation claims if the European Union’s highest court delivers an unfavourable verdict on how they’ve been setting mortgage rates.

The EU’s Court of Justice is examining whether banks are sufficiently transparent with customers about why they were sold mortgages with interest rates based on a Spanish central bank index rather than the more widely used Euribor, which often resulted in thousands of euros in extra costs.

CaixaBank SA is the most exposed lender, with €6.1bn of outstanding mortgages linked to the Spanish central bank’s Loan Reference Index, or IRPH, followed by Banco Santander SA and Banco Bilbao Vizcaya Argentaria SA. In an extreme scenario, banks could be forced to repay clients as much as €44bn, according to Goldman Sachs Group Inc.

While the case was brought by a Bankia customer, the decision will influence how such claims will be judged across Spain in the future. Some one million customers in the country bought IRPH-linked mortgages, paying an average of €25,000 more than those who got loans based on Euribor, according to an estimate by the Association of Financial Users, or Asufin.

A negative ruling for the banks would go against a 2017 verdict by Spain’s Supreme Court, which found that selling the IRPH mortgages couldn’t be abusive because they were tied to an official index.

IRPH is more difficult to calculate than Euribor because it also includes fees and credit risk. Marketed as a more stable option, the Spanish index has consistently produced higher rates for customers since it was created in the early 1990s. But the gap between the two indexes widened after 2008, when the European Central Bank began to drive down its benchmark rate.

A worst-case scenario for the banks would be a verdict that is retroactive, meaning it would include already-matured mortgages and past interest payments on existing contracts. About €108bn of home loans linked to IRPH have been sold since 1999, according to credit rating company DBRS. In September, Advocate General Maciej Szpunar of the EU court delivered mixed messages on the IPRH case in a non-binding opinion. He found that Bankia had been sufficiently transparent with the client, but also concluded that the use of the IRPH falls within the remit of the EU’s rules on unfair terms and therefore Spanish courts can consider it abusive on a case-by-case basis. “The opinion increases the likelihood that the ECJ will rule against the use of the IRPH, which would raise the number of consumer claims against banks for a lack of transparency on the sale of IRPH-linked residential mortgages, exposing Spain’s lenders to heightened litigation risks,” Moodys Investor Services senior analyst Alberto Postigo wrote in September.

Although the EU court follows the findings of its advocates general in most cases, there are notable exceptions. In 2016, it said banks must give back billions of euros to customers who paid too much interest on home loans pre-dating a May 2013 Spanish ruling on so-called mortgage floors. The decision was at odds with the non-binding opinion five months earlier, which had favoured the banks.

Original Story: The Gulf Times | Bloomberg 
Photo: Photo by Pablo Rodríguez from FreeImages
Edition:Prime Yield

Spain’s financial sector has sold €120 billion in toxic assets since 2013

Spain stands out as one of Europe’s most successful story in selling non-performing assets, as its financial sector have already sold about €120 billion from the €200 billion of toxic assets held in its books in 2013. 

The figures were released during the Annual Conference of Spain’s Capital Markets, recently held on Madrid and organized by the European Association of Financial Markets together with the Spanish Banking Association. However, and even though most of the participants agreed the country’s stands out as one success story in selling NPL, they also stressed that there are still €80 billion in NPL to clean up.

That’s why during his intervention, the Governador of Spain’s Central Bank (BdE), Pablo Hernandez de Cos, referred to this issue by asking the banks to intensify their efforts to keep reducing its toxic assets.

Original Story: El Español | María Vega 
Photo: Photo by Victor Iglesias from FreeImages
Edition and Translation: Prime Yield

Sareb looks at the securitization of its credits to developers

SAREB, Spain’s bad bank, is studying new solutions to keep cleaning from its books the toxic assets it inherited from the financial crisis. Securitize part of the Developer’s Credit on its portfolio is one of the solutions on the table, aiming to take advantage of the pull of demand now existing on the market and that in Spain has not had as much supply as in other European countries.

According to SAREB’s Finance & Strategy general-deputy, Iker Beraza, it isn’t the first time this solution is being analysed. «Since 2013 we’ve seen different studies about this theme, but since last year we observed there is more interest (in the market). We’ve been following operations of this sort that have been closed in Portugal and Spain and it seems that the prices can fit in», he explained.

In its intervention during the Annual Capital Market Conference that took place in Madrid, the responsible remembered that SAREB was established seven years ago with the purpose of selling €40 billion in toxic assets and since then has already halved that value. However, there are still other €20 billion to sell and, for that, it will be necessary to explore other ways but without getting out of the radar of larger institutional funds that are «traditional» buyers of this type of assets, such as Blackstone or Cerberus, he explained.

Original Story: El Español | María Vega 
Photo: Sareb Linked In
Edition and Translation: Prime Yield

Haya selected for the management of Sareb’s rental portfolio

Haya Real Estate, one of Spain’s market leader in nonperforming loans (NPL) and real estate asset management, has been selected by the Spanish band bank Sareb for the management of its rental portfolio, comprising more than 3,000 residential and tertiary rented assets.

The portfolio is made up of 80% residential assets and 20% of tertiary properties distributed throughout the Spanish geography. 40% of the assets are located in the Valencian Community, followed by Madrid Community, Castilla-León and Castilla-La Mancha, with 24% of the total portfolio, also, the South of Spain specially Andalusia and the Canary Islands, with 16%.

This new contract provides continuity to the rental management services that Haya has been delivering during the last years for Sareb. Efective from January 1st 2020, this asset management agreement is a strategic business line for Sareb, specially focused in adding value to the rental assets in the mid-term. The contract will last for two years.

This rental management contract is additional to the mandate granted in October 2019 by Sareb to manage the assets of the Esparta project, a €8.4 Bn (net book value NBV) portfolio of loans and REO (Real Estate Owned) up to June 2022.

Original Story: Eje Prime | News 
Photo: Haya Real Estate
Edition: Prime Yield

Spanish banks speed up the sales of bad credit in the end of the year

Spain’s Banks have speed up the sales process of their nonperforming loans (NPL) portfolios in the end of the year. The regulatory watchdogs are increasing the pressure towards an NPL ratio reduction among the country’s banking system.

Since the end of 2019 and up to the beginning of the new year, Spanish banks have sold – or are about to sell – more than €8 billion in NPL. The big news in relation to the last few years is that now these big portfolios aren’t just comprising mortgages only, but also consumer loans without collateral (unsecured) granted to companies and households.

In fact, these days there is more value “unsecured” than “secured” among the latest portfolios sold. Its presence is increasingly bigger in the portfolios, and is no coincidence that the nonperforming rate in the consumer credit is already surpassing the 5% of the general ratio, and in volume, has already reached €5 billion in overdue loans with a double digit annual growth.

The largest porftolios recently sold are those from BBVA, totalling €5 billion in toxic debt of which half correspond to unsecured loans – the largest portfolio with these features to be ever sold in the Spanish market. In specific, the bank sold its Project June, woth more than 300,000 upaid loan contracts, to opportunistic Swedish fund Intrum. On the other hand, in the end of 2019  the bank also sold its €2.5 billion Project Hera, made up largely of loans to SMEs, to Cabot and Carval.

Caixa Bank, for its hand, completed the sale of the €865 million Astún portfolio, comprising unpaid credits to households and corporates. Intrum was the buyer, along with 50% of the Vento portfolio, sold by Banco Sabadell.

Original Story: El Confidencial | Óscar Jimenez
Photo: Photo by Victor Iglesias from FreeImages
Edition: Prime Yield

CarVal and Cabot buy BBVA’s second largest written-off loans portfolio (€2,5 bn)

Following the sale of “Project Juno”, BBVA signed the transfer of a portfolio comprised of written-off loans to small and medium sized enterprises (SMEs) to Cabot and funds managed by CarVal Investors. Named “Project Hera”, this was the banks second largest written-off loans portfolio, with an approximate gross value of €2.1 Bn.

Just a few days before announcing this deal, BBVA had announced another sale of a portfolio of written-off loans (known as “Project Juno”). In this case, the portfolio consisted of loans to consumers with a gross value of €2.5 Bn. The operation was BBVA’s largest sale of a portfolio of written-off loans so far. 

Over the past two years, BBVA has carried out several operations involving the sale of loan portfolios – mostly loans to developers and mortgages. Among them, the sale announced in December 2018 stands out. It was a portfolio of loans (known as (“Ánfora”) with an approximate gross value of €1.2 billion, primarily consisting of mortgages (both doubtful and bad loans). In addition, in June 2018, the bank sold a portfolio of loans to developers with a gross value of €1 billion, called “Sintra”; and in July 2017 it sold another portfolio of loans to developers with a gross value of around €600 million, known as “Jaipur”. 

In November 2017, BBVA announced the transfer of its real estate business in Spain to Cerberus Capital Management, L.P., an operation that was completed in October 2018.

Original Story: El Confidencial | J. Zuloaga
Photo: BBVA
Edition: Prime Yield

Sareb is €34 Bn property hangover, says Bloomberg

Spanish bad bank Sareb’s – whose €34 Bn portfolio of non-performing real estate assets is Europe’s largest, according to investment banking consultancy Evercore -, record of selling assets has been far from stellar.

According to Bloomberg, investors are finding out that a complicated operational structure and conflicting shareholder interests make buying assets from Sareb difficult. Its chief, Jaime Echegoyen, concedes Sareb’s record isn’t exemplary.

«We try to guarantee that the investor clients receive the service they deserve in each one but it’s possible it’s not always like that,» he said in an interview in Madrid.

With Spain’s real estate market losing some steam after half a decade of growth, doubts are mounting about Sareb’s ability to meet its original mission — to pay back by 2027 the more than €50 Bn in capital and debt injected into it by the state and banks.

The bad bank said this week that it’s shaking up its management structure. It plans to appoint a chief executive officer to take over business responsibilities so Echegoyen can focus on corporate issues.

Sareb was created in 2012 when Spain was in the throes of a financial crisis after its real estate market bubble burst. About half way through its 15-year lifespan, it has sold only about a third of the net €51 Bn of defaulted loans and real estate assets it bought at a discount from troubled banks. With the reduction of bad loans tailing off since 2017 and with investors picking off the jewels, Sareb is sitting on more and more unattractive assets.

The entity may have to accept lower returns if it wants to wind-up the operation as planned by 2027, said Elena Iparraguirre, director of financial services ratings at S&P Global Ratings.

Creating Sareb was a condition of Europe’s bailout of Spain’s banks. It allowed lenders that took state aid, such as Bankia SA, to jettison soured assets. With mounting public anger about the bailout, the government persuaded banks such as Santander and CaixaBank SA to buy a 55% stake in Sareb. The government controls the rest.

But Sareb was dealt a difficult hand. It was given no time to build a team, so it relied on structures banks already had in place. Four bank-owned servicer companies divided up and marketed portfolios assigned to them, with commissions depending on the prices they secured.

The servicers were later sold to global investment funds. 

Sareb’s objectives often diverge from those of the servicers. Both need to sell but Sareb can accept losses while the servicers driven by commissions are often unwilling to settle for lower prices.

Many of the assets Sareb took over from banks were grossly overvalued, according to a person with knowledge of the process. In some cases, holes were dug and foundations laid on properties to bump up their categorization and reduce the discount banks had to give Sareb, the person said. Sareb’s team of about 60 people had just a few months to put a price on more than 200,000 assets, with little time for on-site visits.

Sareb also has a conflicting relationship with its shareholding banks. While Sareb mainly reduces its stock one asset at a time, Spain’s banks, buoyed by the country’s economic recovery, sold their portfolios in huge packets at large discounts to funds. In the first half of this year, Spanish banks and funds sold €4.5 Bn of bad loans compared with €388 Mn in process for Sareb, according to data compiled by Evercore.

Yet when Goldman Sachs proposed to Sareb selling off a large portfolio, the idea was voted down by the board, comprised largely of bank representatives worried about flooding the market, people familiar with the operation said. Echegoyen says the deal failed because Sareb couldn’t offer the kind of discount such a large package would demand.

Sareb is trying to address some of its structural issues. It wants to renegotiate its relationship with the servicers to lower fees and take back control of some of the maintenance and legal activities. The bank has opened up the bidding process to other companies to drive competition.

Whatever Sareb’s record, one thing is incontrovertible, said Echegoyen. «We have saved the Spanish financial system,» he said. «It doesn’t mean Sareb was the white knight but we were part of a white knight – perhaps the shield or the lance or the horse

Original Story: Bloomberg | News 
Photo: Sareb (Linked IN)
Edition: Prime Yield

Arrow Global raises €630 million for a pan-European NPL fund

Debt purchaser Arrow Global has announced a fundraising round that amassed nearly €630m from investors for an inaugural pan-European NPL fund.

Arrow Credit Opportunities SCSp and related entities raised €628.5m of third-party commitments into an eight-year, closed-end fund structure, drawing from global investors in diverse geographies and sectors. Combined with Arrow’s own commitments, the fund will draw on €838m in total and the group is targeting €1.5bn of third-party investments before the end of 2020.

 The transformational venture will provide additional asset management and servicing (AMS) revenue, along with fund management fee income, to the group.

 Arrow said that raising the fund is a major achievement in the development of its fund management capabilities and is central to the group’s strategy to accelerate towards a more capital-light model.

 Lee Rochford, group chief executive of Arrow Global, said: «This shows we are successfully executing our strategy to transform the business through the build-out of our fund management capabilities».

 «This represents the completion of a significant initial stage of this strategy and part of our continued drive to engage with capital partners and grow assets under management. I have been impressed with the speed of execution of this fund raising

Original Story: Credit Strategy | Marcel Legouais
Photo: Arrow Global site
Edition: Prime Yield

Direct lenders keen to increase its presence in Spain

Direct lenders are increasingly looking for opportunities in Spain, following private equity firms into the region as they look beyond a crowded Western European mid-market in search of new deals and yield, bankers said.

Ares Management, Bain Capital Credit, BlueBay, CVC Credit Partners and Pemberton are some of the most active direct lenders in Spain, stepping up their efforts significantly in 2019 to find opportunities as private equity firms including Advent, EQT, Portobello and investment firm Investindustrial seek investments in the region.

Although the Spanish market is still dominated by bank lending, with around 80% of deals involving traditional lenders, the number of transactions led by debt funds has increased steadily in the last three years, according to Deloitte’s latest Alternative Lenders Deal Tracker report, quoted by Reuters.

«Spain has always felt like a market which has been less integrated into Europe and in terms of banking has always been more balkanized with strong regional champions trying to protect their turf. But with more international sponsors hunting around, direct lenders and international banks have followed suit,» a capital markets head said.

With eight private debt transactions registered in the first three quarters of this year, the market has already hit 2018’s total deal level, according to Investment bank GCA Altium’s third quarter MidCapMonitor report.

While Spain was a no-go area for investment in the wake of the financial crisis, its economy is now one of the fastest growing in Europe, steadily exceeding the euro zone’s average growth rate over the past few years. In the third quarter of 2019, its unemployment rate decreased to 13.9%, the lowest rate for 11 years.

Despite recent concerns over unrest in Spain’s wealthiest region of Catalonia and political uncertainty, with Spain’s Government fourth election in as many years, the strengthening economy has caught the attention of European private equity sponsors and consequently, international lenders.

Private debt funds have found increasing opportunities to partner with European private equity sponsors — particularly those from the UK — that are looking to back their portfolio companies’ growth strategies in Spain.

While local sponsors have had a preference to utilise their relationships with more conservative Spanish lenders, they are also catching on to the higher leverage on offer from direct lenders.

«There is a trend towards more term loan B and unitranche providers are more noticeable,» a senior banker said.

Unitranche facilities are attractive for borrowers as it means they can raise their leverage to a higher level to pursue their growth strategy.

Direct lenders are willing to offer leverage of 5.5-6.0 times in Spain, compared to the 2.5-3.0 times offered by the more conservative Spanish lenders.

«Generally, local sponsors have not tended to leverage up their portfolio companies. That raises interest from UK sponsors which act more aggressively with higher leverage and would look at alternative debt structures to finance expansion and growth strategies,» the senior banker told to Reuters.

Quality is the key

Most private debt transactions in Spain involve borrowers that are backed by well-established private equity firms.

«People look at the quality of the borrower and the sponsor. If the sponsor is a household name, it will attract established direct lenders,» Norbert Schmitz, managing director at GCA Altium said.

Direct lender Pemberton, the asset manager backed by Legal & General, hit a milestone in Spain, completing over €600m of deals across four transactions in 2019, it announced in October. The deals included financing Advent International’s acquisition of dental clinics Grupo Vitaldent, and InvestIndustrial’s public tender offer for the delisting of chocolate product manufacturer Natra.

Prior to 2019, Pemberton completed its first deal in Spain in 2016 and completed another one in 2018.

In addition to deal flow, Spain is also attractive to direct lenders as financings can often come with a pricing premium compared to Western European deals.

On average, direct lenders can demand a 50bp-100bp premium on transactions in the Spanish market compared with the rest of Western Europe, according to a senior private debt fund manager.

But many are still cautious

Private debt funds are still cautious when lending to Spanish companies as local laws tip the balance towards borrowers and away from lenders and investors.

“We still feel that we need some form of pricing premium to invest there,” a senior private debt manager said.

Despite the pricing premium, it’s not enough to tempt all direct lenders to the region, on a risk-reward basis, the senior private debt manager said.

The economy has largely been immune to Spain’s political woes but its expansion has slowed of late.

Original Story: Reuters | Kerstin Kubanek
Photo: Photo by Victor Iglesias from FreeImages
Edition: Prime Yield

Santander’s profit plunge 35% thanks to Brexit

Santander, Spain’s biggest bank, recorded a 35% drop in its net profits during the first nine-months of the year, after its British subsidiary profits fell 19%.

The Spanish bank recorded a net profit of €3,732 million between January and September, while its British arm earned €828 million. Difficulties in the UK were offset by a 19% increase in profits in Brazil, where Santander earned €2,249 million. The bank’s Brazilian arm remains its most profitable subsidiary.

The company’s American division witnessed the biggest leap in profits, seeing them rise to €619 million, an increase of 27%.

Profits were also up significantly in Mexico, which saw a 14% rise to €659 million and in Portugal where profits surged 12% to €385 million. 

The company’s Spanish wing remains its second most profitable division, seeing profits rise by 3% to €1.185 million. 

Ana Botin, the group’s president, said that the company had maintained «good trends» despite a difficult business environment. She added that diversifying into both European and American markets had helped Santander distinguish itself from competitors.


Original Story:
 The Olive Press | Robert Firth
Photo: Santander Facebook
Edition: Prime Yield

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