Banco Sabadell has sold a portfolio of distressed assets from CAM to the US investment firm KKR for around EUR 130 million.

The sale, which was signed a few days ago, relates to the so-called “Aurora project”, with a book value of approximately EUR 500 million, according to sources close to the transaction, which were advised by Deloitte.

Bain Capital has also participated in the final bid for this portfolio, integrated by the Alicante entity’s toxic assets, which Sabadell assumed in 2011 after a bailout of the Deposit Guarantee Fund (FGD).

Nine years later, the bank presided over by Josep Oliu has managed to divest itself of the portfolio, thus concluding the Asset Protection Scheme (EPA) which it received in exchange for keeping the fund.

This sale also allows Sabadell to continue cleaning up its balance sheet, now that the merger negotiations with BBVA have failed and the group of Catalan origin wants to continue on its own and with a new management, led by César González-Bueno, who will take over from Jaume Guardiola as chief executive.

This is the second operation of this type closed by Banco Sabadell this year, after it signed the sale of a portfolio of non-performing loans to the management company Tilden Park for some 65 million euros just a few days ago.

Original Story: EFE/Expansión
Photo: Sabadell Bank site
Translation: Prime Yield

Spain ordered banks to comply with a six-month extension of a state-backed loan scheme to June next year, designed to help companies struggling with the impact of the coronavirus pandemic.

Economy minister Nadia Calvino told bank clients who have no overdue payments can request these loans. Banks should also provide these loans with longer maturities and grace periods if customers ask for them, the minister said.

“These measures are aimed at addressing potential solvency problems that may start arising and prevent viable companies from shutting down,” Calvino said.

Spain has already provided €108 billion in state-guaranteed loans to its companies, she said.

With nearly 1.5 million cases and 41,253 deaths from COVID-19, and an economy that relies heavily on tourism, Spain has been one of the countries in Europe hardest-hit by the pandemic.

The International Monetary Fund has said Spain is the euro zone country with the highest take-up of guaranteed loans.

At a regular weekly meeting, the cabinet also approved an extension until March of restrictions on forced bankruptcies of companies affected by the coronavirus pandemic to avoid the so-called cliff effect from the withdrawal of some support measures next year.

Guarantees on the state-backed credit lines, designed to help companies amid the pandemic-induced economic crisis, were extended to up to eight years from the originally planned five on most loans.

An extra year was added to the grace periods, which allow borrowers to delay payment without being charged late fees, being found in default or having their loans cancelled.

Companies had been given until December to apply for the state-guaranteed funding scheme of €140 billion. The grace period on a significant volume of loans ends in April, and many small businesses feared they would not have been able to cope with their payments that soon. 

Original Story: Reuters | Belén Carreño 
Photo: Caixa Bank website
Edition:Prime Yield

BBVA and smaller rival Sabadell announced they are in talks to create Spain’s second-biggest domestic lender by assets, the latest move in the accelerating consolidation of the Spanish banking sector.

BBVA/Sabadell merger would mark a significant step in this process, coming after Caixabank agreed in September to buy Bankia for €4.3 billion.

If a BBVA/Sabadell deal goes ahead, the new bank would have nearly €600 billion in assets in Spain and a combined market value, Reuters calculations using Refinitiv data showed.

Taking into account both banks’ international businesses, but deducting the upcoming sale of BBVA’s U.S. division, a merged group would have around €860 billion in total assets, still below Santander’s €1.5 trillion global balance sheet.

Banks across Europe are struggling to cope with record low interest rates, and the economic downturn sparked by the coronavirus pandemic is forcing them to focus on further cost cuts, on a standalone basis or through tie-ups.

Both BBVA and Sabadell said the talks were ongoing and said no decision had been made on whether a transaction would go ahead.

“The entities have initiated a reciprocal due diligence review process as is customary in this type of transactions and have appointed external advisers,” BBVA said in a stock exchange filing.

“It is noted that no decision has been made in relation to the potential merger transaction and that there is no certainty as to whether any such decision will be made or, if that is the case, as to the terms and conditions of a potential transaction.”

Sabadell’s own statement confirmed the talks and said it had initiated a due diligence process and designated external advisers.

Original Story: Reuters | Jesus Aguado 
Photo: BBVA website
Edition: Prime Yield

Leading Spanish banks reported a slight recovery in Q3 domestic earnings compared to the Q2 as net fees and interest income rose, boosted by larger loan and fixed income books.

However, new restrictions that have been imposed in Spain to fight the second wave of Covid-19 are likely to increase loan loss provisions in the next few quarters putting pressure on Spanish lenders’ domestic profitability, according to DBRS Morningstar.

DBRS Morningstar posted an earnings commentary on Spain’s seven largest banks – Bankia, Bankinter, BBVA, Caixabank, Liberbank, Sabadell and Santander.

Non-performing loans (NPLs) decreased in four out of the seven banks this year but other indicators point to a “material asset quality deterioration” in the next few quarters, wrote analysts Pablo Manzano and Arnaud Journois.

These indicators include the ECB ́s latest bank lending survey; Spanish Banks have been tightening access to credit during the Q3 and expect to continue doing so for the rest of the year.

The Bank of Spain ́s stress test published on October 29, meanwhile, showed an expected negative impact on capital ratios ranging between 100bps and 200bps for large Spanish banks on its baseline scenario at the end of 2022.

Moreover, statements made by EU officials, including ECB supervisory board chair Andrea Enria suggest that NPLs at European banks could hit higher levels than the last global crisis.

Therefore, the onset of the Covid-19 second wave is likely to cause “significant asset quality deterioration” in Spain’s banking sector in 2021, according to DBRS Morningstar.

Mr Manzano and Mr Journois wrote that the slow pace of credit quality deterioration reported in the banks’ financials this year, despite the huge economic shock of Covid-19, can largely be explained by the extraordinary measures applied by governments and banks to support the economy, including loan moratoria and state guaranteed loans.

In terms of loan moratoria, an average 6.5% of lenders’ total loan books have been subject to some kind of payment holiday, according to DBRS Morningstar.

The use of ‘stage 2’ loans – loans at risk of turning bad – on the moratoria portfolio remains much higher than on the ‘normal’ portfolio, the analysts wrote, indicating that this perimeter of loans has experienced credit quality deterioration at a significantly higher rate than other parts of the loan book.

Moreover, according to Bank of Spain analysis, the moratoria granted in Spain has targeted borrowers which were already the most vulnerable households, even before the Covid-19 crisis.

In addition, Spanish banks have implemented the state guarantee scheme in Spain and in other geographies. As of September 30, banks have granted around €104 billion in lending to SMEs and corporates in Spain linked to the state guarantee scheme. Credit risk has therefore been mitigated significantly by the state guarantees approved by the Spanish government, according to DBRS Morningstar.

This scheme represents around 25% of the sector’s exposure to SMEs and corporates in Spain. In addition, the Spanish government has also approved a new state guarantee loan scheme of up to €40 billion to provide funding sources to new investment projects.

Original Story: The Banker |David Robinson 
Photo: Banco de España website
Edition: Prime Yield

Pandemic payment breaks on European loans totalling billions of euros threaten to undermine efforts by the region’s banks to put the coronavirus crisis behind them.

Some of the millions of borrowers who were given repayment holidays by banks and governments across Europe shortly after the outbreak of the pandemic still need relief as a second wave of lockdowns squeezes the economy and puts people out of work.

But the longer their loan repayments are kept on ice, the bigger the potential problem for banks as debts stack up, making them more difficult to tackle.

The European Central Bank’s chief supervisor Andrea Enria has warned of a “huge wave” of unpaid loans that could top €1.4 trillion and has cautioned against postponing writing them off, warning that waiting for loan moratoria to expire could see many borrowers “unravel at once”.

Although the volume of loans on pause fell sharply over the summer, a Reuters survey and analysis of the latest data available shows that loans totalling about €320 billion were still on a payment holiday at 10 of Europe’s biggest banks.

Personal debt in Europe, whether for houses, white goods or cars, is at a record high, European Union data shows. Although some countries cut back in the past decade, consumers in Britain, France and Germany borrowed roughly one fifth more.

So when payment holidays became widespread during the first wave of coronavirus lockdowns in Europe, lenders prepared for losses, with financial results showing that the 10 have set aside some 45 billion euros to cover the cost of unpaid loans.

An analysis of loans still on a payment break at ten of Europe’s largest banks, Santander SAN.MC, HSBC HSBA.L, Barclays BARC.L, Societe Generale SOGN.PA, BNP Paribas BNPP.PA, ING INGA.AS, Intesa ISP.MI, UniCredit CRDI.MI, Deutsche Bank DBKGn.DE and Credit Agricole CAGR.PA, show many thousands are still delaying resuming monthly repayments.

For banks looking to avoid a return to the dark days of the debt crisis a decade ago, there is a delicate balancing act between meeting government requests to go easy on borrowers and not putting their loan books in jeopardy.

Calculating default risk is complicated and banks take many factors into consideration such as the type of loan, the circumstances of the borrower and the wider economy.

Spain’s Santander, which has €39 billion of loans on hold, made 9.6 billion euros of provisions for unpaid debt, while Italy’s Intesa, with €48 billion of loans on moratoria, set aside just 2.7 billion euros this year.

A spokesman for Intesa said customers that took payment holidays were resilient and their exposure to tourism, hard hit by the crisis, was low. Santander declined to comment.

Central banks in Germany, which told banks to prepare for the “worst case” and Portugal, which cautioned of the risks of winding down economic support measures, are worried that if personal debt problems spiral it could suck in banks too.

 “Some banks have more than 20 per cent of their loans on payment holiday. When will gravity kick in? At some point, you have to return to normal business,” Jerome Legras of Axiom Alternative Investments said.

In Italy, payment breaks rose to roughly 10 per cent of mortgage loans at the height of the pandemic, while in Britain it reached more than 15 per cent, calculations by the European Datawarehouse, which collects the data for investors, show.

Payment holidays in Portugal reached 12 per cent, it estimated.

Since then, the majority of borrowers have resumed paying.

But problems linger.

“There is a significant amount of distressed debt throughout Europe,” Ed Sibley, Deputy Governor of the Irish Central Bank said. “And that distress will increase because of COVID-19.”

A recent study by Ireland’s central bank found that although the number of payment breaks had fallen by more than a quarter since June, 9 per cent of Irish loans remain on hold.

It found that hotels and restaurants, among the worst hit by the pandemic, were the most likely to still be on a break.

“For now, job protection measures are in place. But this will start coming to an end,” said Ernest Urtasun, a Spanish lawmaker in the European Parliament. “The number of distressed borrowers will explode in the coming months.”

Banks, however, are hopeful government support, which is being extended around Europe, will help.“Withdrawing support to companies and the economy ahead of time is the time bomb,” said Miguel Maya, CEO of Portugal’s Millenium bcp. “We have to give the economy time to breathe.”

Original Story: Cyprus Mail | Reuters News
Photo: Photo by Lotus Head in FreeImages.com
Edition: Prime Yield

The coronavirus pandemic will push residential mortgage default rates up and home prices down in Spain and Portugal, Fitch Ratings says in a new report. Payment holidays have cushioned mortgage performance from the pandemic’s impact, but job losses mean some borrowers will face payment shocks as their payment holidays come to an end.

“We have updated our key analytical assumptions for Iberian mortgage portfolios to reflect the continuing credit effects of the pandemic. Under our ‘Bsf’ rating scenario reflecting our base-case expectation plus a small cushion, the lifetime default rate of a representative mortgage pool has increased to 9.7% in Portugal and 7.8% in Spain, from 9% and 7% respectively”,  says the agency in a note.

Banking system non-performing loan (NPL) ratios have not yet risen from pre-pandemic levels, as payment holidays suppress and delay mortgage defaults. But while payment holidays will have helped some borrowers avoid default, the roll-rate to default for payment holiday loans will be mostly influenced by underlying employment dynamics. Historical data from legacy Spanish portfolios indicates that default rates on payment holiday loans could be about 20% higher than on standard loans.

Borrower support measures may have also delayed evidence of house price drops, amid very low interest rates and expansionary ECB monetary policy. Nevertheless, Fitch Ratings forecasts Spanish nominal house prices to decline approximately by 10% in 2020-2021, and had increased its “Bsf’ rating scenario current-to-trough house price decline (HPD) assumption to 24% from 17%, “mainly because of weakening affordability and fragile consumer confidence due to the pandemic’s impact on GDP and employment.

Unlike Spain, Portugal saw mortgage lending volumes grow in the first half of 2020, supporting nominal price growth in the high single digits. However, Fitch analysts believe lower domestic demand, and a more cautious approach by lenders and also by cash and foreign buyers (who together have accounted for more than half of housing market activity in recent years), will see prices fall by around 2% over the next one-two years. Our current-to-trough HPD assumption for Portugal is unchanged at 26%.

Original Story: Fitch |  Fitch Ratings
Photo: Photo by Xexo Xeperti for FreeImages.com
Edition: Prime Yield

The number of mortgages taken out by Spaniards fell in March by 14.6% year-on-year, the government’s statistics body said, reflecting the hit from the coronavirus outbreak.

March’s 26,382 mortgages also represented a 26.8% decrease from February, the National Statistics Institute said.

One of the worst-hit nations in the world by the COVID-19 disease, Spain began a strict lockdown on March 14.

Mortgages in April, the first full month under lockdown, are likely to fall even more starkly. Analysts expect the near standstill in Spain’s economy to have a direct impact on banks’ mortgage books, which account for 40% of their credit portfolios or around €500 bn.

State-owned Bankia, one of the most-exposed lenders to mortgage loans, said during first quarter results new mortgage lending had fallen around 60% in April against March, though it expected a post-lockdown recovery.

Lockdown measures prevented individuals from conducting property visits, taking out mortgages, and relying on public notaries – who were only permitted to practise in emergency cases.

To mitigate the impact of the epidemic, which led to hundreds of thousands of job losses, the government approved mortgage holidays in March.

Spain’s economy relies heavily on both tourism and real estate activity, making it particularly vulnerable to the pandemic which has killed 27,117 people.

Property prices, however, held steady despite the economic ravages, with Spain’s largest property portal Idealista reporting a 0.5% rise in home prices in April.

Original Story: Reuters| Clara-Laeila Laudette
Photo: Photo by Svilen Milev from FreeImages.com
Edition: Prime Yield