27 February 2018 – Expansión
The bad bank was created with 200,000 toxic assets worth €50.8 billion, inherited from the rescued savings banks. In five years, it has divested 27% of that encumbrance. It has another ten years left to liquidate its remaining stock.
Just over five years ago, Sareb (…) was launched. The creation of the bad bank was made possible thanks to the participation of European funds in the bank rescue and the solidarity of the financial system, which had the capacity to resist the crisis and contribute its grain of sand to the process.
Sareb was created with private capital majority (contributed by the banks, with the exception of BBVA, which refused to participate, as well as insurance companies and a handful of real estate companies) and the remainder was provided by the State through the Frob, in such a way that any equity imbalances and losses that the new company would incur would not be accounted for in the public deficit (…).
The last five years have not exactly been a walk in the park for Sareb (…). Nevertheless, it has generated revenues from the sale of assets amounting to €12.9 billion, which have allowed it to cover its expenses, which, in addition to the cost of its 400 employees, involve: the payment of commissions to intermediary companies (€1.1 billion); the payment of interest (€4.0 billion (…)); taxes (€790 million (…)) and more than €400 million in maintenance costs and service charge payments.
The bad bank’s revenues proceed from the sale of its assets, whose composition has changed considerably since its creation. Currently, Sareb owns almost the same number of properties as it had at the beginning, but after having sold almost 65,000 assets. That is because some of the loans that were transferred to Sareb upon its creation have now been converted into properties through the execution of the guarantees that they secured. In this way, properties now account for 32% of the company’s total asset value, whilst the weight of loans has decreased from 80% to its current level of 68%. The entity’s assets have decreased by 27% to reach €36.9 billion and the debt issued by Sareb, which is guaranteed by the State, currently stands at €37.9 billion, down by 25%.
The company has generated positive margins during the course of its life, although it has only ever recorded losses. In 2016, the most recent period for which figures are available, its losses amounted to €663 million and, although its results for 2017 have not been published yet, the losses are expected to be similar. Reality has imposed itself on the initial business plans. Today, both the entity’s President, Jaime Echegoyen, and the company’s shareholders, understand that one possible objective would be for the entity to be liquidated within 10 years without having needed any new capital contributions and for some of the investment to be recovered, around 60%, with the remaining 40% having to be written off.
The President of Sareb understands that the company is fulfilling the basic purpose for which it was created, albeit with difficulties: the sale of damaged assets from the entities that received public aid, because, it does not have any other levers that would allow it to offset the possible losses that it would incur if it accelerated its sales.
Sareb only generates revenues from the sale of its assets and that is forcing it to adjust its sales prices a lot more so as not to incur losses. In this regard, it is totally different from the other financial institutions, for whom the damaged real estate assets account for only part of their balance sheets and, therefore, they can divest them at lower prices, since they receive other revenues that generate sufficient margins for them.
Original story: Expansión (by Salvador Arancibia)
Translation: Carmel Drake
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Source:: AURA Real Estate Experts