Sareb anticipates clean-up of loan portfolio with a write-off of €719 million
Sareb has proceeded, following accounting consultation with the Bank of Spain, to report the write-off of €719 million against 2014 results. The portfolios that have been paid off comprise loans entailing difficult recovery thereof transferred to Sareb, such as those from insolvent companies which were initially conferred without an actual guarantee, as well as equity loans.
Subsequent to the provision, the year ended with a negative net result of €585 million. Had this write-off not been anticipated, net losses would have been reduced to €45 million.
2014, the company’s second year of operation, saw a rise in activity, supported by incipient improvement of the real estate sector. The company achieved revenues totalling €5,115 million, up by 23% over the previous year.
Eighty per cent (80%) of its income came from retail activity, stemming fundamentally from management of loans which brought in €3,129 million in interest, amortisations, cancellations and sales. (See table below.)
More than 11,500 borrowing company proposals were processed over the course of year, which amounts to 31 proposals per day. Most came from the so-called Sales Stimulus Plans (SSP), agreements reached with businesses, primarily small and medium enterprises, to facilitate the sale of their properties. Thanks to these operations, Sareb reduced its developer-related risk last year by €1,330 million.
In turn, retail management of the real estate portfolio amounted to €871 million in income. Sareb rolled out 15,298 properties, nearly half of which were proprietary, with the remainder being linked to loans owned by the company. These figures place Sareb among the top five market operators, with business activity surpassing 40 properties sold per day, well above the anticipated number of 30. Almost half of the sales were concentrated in four provinces: Madrid, Barcelona, Valencia and Málaga. Sixty-three per cent (63%) of sales were residential properties.
Noteworthy in the real estate portfolio are land sales, which were practically non-existent a year ago. Here Sareb executed close to 500 transactions in 2014, which makes the company the main operator and driver of this product in Spain.
Sales of assets in the industrial and tertiary sector (commercial sites and office spaces) experienced revitalization in 2014, a year which saw a concentration of 11% of income attributed to real estate commercialisation.
As far as the wholesale channel is concerned, Sareb finalized 11 operations last year with major institutional investors, resulting in revenues totalling €1,115 million. Eighty-four per cent (84%) of this income was the product of loan sales.
Ebitda in excess of €1,100 million
Through the management of financial assets, Sareb obtained a margin of €1,321 million euros, most of which (€605 million) resulted from operations involving loan amortisation and cancellation, SSP and the sale of bilateral loans. In addition, the company achieved a margin of €134 million through portfolio sales and €583 million derived from interest on the company’s loan portfolio. (See table below.)
Real estate asset management afforded Sareb margins totalling €278 million, mainly through the sale of properties, with which it obtained €219 million. This figure is added to the €49 million from rental properties and the more than €9 million the company obtained through its shareholdings in the so-called Bank Asset Funds (“FABs”).
In 2014, Sareb incurred expenditures of €495 million
After taking away these expenditures, Sareb obtained a positive ebitda figure of €1,103 million, which has enabled the company to meet a net financial charge of €1,095 million, derived from interest payments to the nine financial institutions from which Sareb purchased its assets. Income before taxes and provisions stands at €62 million in losses, less than half the figure reported in the previous year. The clean-up applied to the portfolio of loans posing collection difficulty in the amount of 719 million euros resulted in the company’s ending the year with net losses of €585 million. The bulk of the portfolio of loans that have been written off (€628 million) is attributed to credit lines without an actual guarantee that are outstanding and in a state of insolvency and which Sareb had already envisaged under its business plan to progressively cover over the course of the company’s lifetime. Therefore, anticipation of this clean-up does not have an impact on future prospects and projections. The remaining clean-up, amounting to €91 million, affects the portfolio of equity loans, where Sareb’s credit position is also very weak. As early as 2013, Sareb contributed €259 million to clean up this portfolio. In total, the company performed clean-ups in the amount of €978 million in two years. “Following this remarkable success, Sareb is now in a stronger position, with less uncertainty, to tackle business in the coming years and make the most of the emerging market recovery”, explained Sareb’s executive chairman, Jaime Echegoyen. Cancellation of over €3,400 million of debt The impact of accounting regulation on Sareb’s accounts has not impeded the company in taking a further step forward in upholding its main commitment, payment of the debt issued for purchasing its assets, amounting to €50,781 million and backed by the Spanish government. In addition to meeting the payment of the interest generated by this debt, Sareb amortised a total of €3,400 million attributed to 2014. In its first two years of activity, the company has paid off €5,700 million of debt, more than 11% of overall debt, which lies at close to €45,000 million as of year-end 2014. Goals for 2015 This year, Sareb faces one of the most important challenges since the company was formed with the implementation of its new portfolio servicers (Haya Real Estate, Altamira, Servihabitat and Solvia). These entities were selected last year through a complex tendering process. The arrival of the new servicers will empower Sareb with more professionalized and efficient management. Despite the technical complexity involved in the migration of portfolios to the new administrators, Sareb aspires to maintain 2014 sales figures, once again through renewed prominence of land sales and operations involving properties that are listed as loan collateral. As a product of this commercial activity, Sareb expects to generate sufficient income to amortise another €3,000 million of debt this year. Social housing Since its inception, Sareb has implemented social engagement initiatives without deviating from the company’s established mandate. The main course of action consisted of making 2,000 housing units available to Spain’s autonomous communities for use in their affordable rent programmes. To date, Sareb has signed agreements with Catalonia, Aragón and Galicia, and talks are underway with a number of other regional governments and will progressively materialize in the months ahead. Jaime Ponce, new director representing the “FROB” The executive director of the Fund for the Orderly Restructuring of the Banking Sector (“FROB”), Jaime Ponce, will join Sareb’s Board of Directors. He will represent the entity he directs. Jaime Ponce will replace Ana Sánchez Trujillo, who submitted her resignation for personal reasons. His appointment will be submitted for approval at Sareb’s next general shareholders meeting. Financial information (Euros Millions) 2014 re-drafting 2015 % Total income 5,255 3,886 -26% Gross margin of financial assets 1,318 956 -27% Gross margin of real estate assets 213 208 -2% Institutional margin 199 73 -63% Total gross margin 1,729 1,237 -28% Write-off effect -1,068 -337 68% Gross margin post writ 661 900 36% Operational costs -495 -612 24% Amortizations -71 -50 -28% Business income 95 237 149% Financial costs -1,095 -709 -35% Pre-tax income -1,00 -472.3 -53% Income for the year -804 0.3 Revenue breakdown (% of total) Cost breakdown (% of total) Portfolio performance (EUR Million) Debt repayments (EUR Million) Sale of owned properties (% of sales volumes)
