Tue. Feb 18th, 2020

The bank maneuver to avoid repeating the "drama" of the ground clauses


Difficulties multiply for the Spanish banking sector. The decision of the European Central Bank (ECB) to keep the reference rates at zero until at least 2022, lower the deposit interest rate by ten basis points and launch a new sovereign debt purchase operation undermine the already touched business of financial institutions, obliged to find solutions to an increasingly adverse environment.

The main banks operating in Spain are noticing the effects of the expansive measures of the European regulator, which began in 2016 and which, judging by the latest announcement by Mario Draghi, have long-lasting visions.

Entities like Bankia had to cut your profit forecast for next year for the monetary policy of the ECB. The CEO of the entity, José Sevilla, said during the presentation of the semiannual results that Bankia would be unable to reach 1.3 billion euros by 2020 contemplated in its Strategic Plan (2018-2020). Others such as Caixabank or Sabadell also reduced their estimate of benefits for this year. Since 2016, these three entities have left more than 14,000 million of market capitalization.

The truth is It is not an easy year for the sector, which from January to the end of yesterday accumulates a loss on the stock market of about 13.4 billion euros. Further, only between July and August the banks have suffered a stock market crash of almost 20,000 million euros.

No surprises

With the announcement of Draghi already digested, yesterday all bank securities closed in positive, with Sabadell (7.80%) and Caixabank (7.27%) scoring the highest profits.

The doctor of Economics and professor at the European University of the Canary Islands, Jon Frías, attributes this rebound to two possible factors: on the one hand, that the ECB's decision was in line with expectations, even better than the estimates of a part of the market, which believed that the marginal deposit facility would go down to -0.60%, and on the other, the tiering system, which avoids a penalty for the first excesses of liquidity , which, in his opinion, "will have an impact on the bank's income statements." As this expert recalls, with "tiering", German banks will save 900 million a year in compensation to the ECB for excess liquidity, the French 700 million and the Spanish about 400.

However, the employer of the Spanish banking sector has already warned of the challenges that the entities must face. The spokesman of the Spanish Banking Association (AEB), José Luis Martínez Campuzano, said yesterday that in a scenario of low interest rates “it is essential that banks continue to improve their efficiency, which goes through a combination of the continuity of expense adjustments with increased revenue». The president of Bankia, José Ignacio Goirigolzarri, also assured, after learning about the new ECB measures, that the bank should reflect on its business model.

Judicial battle

In addition, a new judicial front is opened to Spanish banks: mortgages referenced to IRPH. The publication of the non-binding opinion of the General Counsel of the Court of Justice of the European Union (CJEU) on mortgage loans referenced to IRPH has reopened the uncertainty about the effects of a possible wave of claims.

The truth is that there is still a way to go so that the mortgaged can claim in another way that is not going to the courts – first the CJEU and then the Spanish courts must collect the opinion of a lawyer before – but the generated environment has reminded the sector of what happened years ago with the abusive clauses and if there is something clear, it is that you want to avoid the reputational wear that was suffered then.

From the AEB remember that the possibility of claiming on the IRPH index to the entity with which the loan has been contracted "is an option always open to the customer and is a regular part of their relationship with the company." Although, they point out that the opinion of the general lawyer "does not imply a decision, nor does it require a change, so it makes no sense to create the expectation that a generalized complaint procedure can be established for this particular matter."

Anyway, the possibility of a negative sentence has put the sector back in the spotlight and has opened the ban on estimates of its possible impact. One of the last reports made has been that of the Afi consultancy, which ensures that "the potential implications will depend on the effect of said nullity."

Thus, it establishes three different scenarios. In the case of maximums, the total repayment of the interest paid in said contract is contemplated (the IRPH plus the applied differential, on which they estimate that it has not exceeded 10 basis points on average). In an intermediate scenario, the return would correspond to the difference between that IRPH plus 10 basis points and the Euribor. And what analysts consider "more financially reasonable" would be the difference between the IRPH plus 10 basis points and the most differential Euribor in the market, which they estimate has an average of 75 basis points.

So, according to your calculations, the bank would have generated about 38.6 billion euros in accrued interest in the period 2003-2018, for the mortgages granted with the IRPH as a reference. "If these loans had been granted referenced to Euribor 12 months without differential, the interest generated would have amounted to approximately 26.4 billion euros, which is a difference of approximately 12.2 billion."

Finally, if these loans had been granted referenced to Euribor 12 months plus a differential of 75 basis points, “those interests would amount to approximately 33.9 billion euros, resulting in a difference of about 4.7 billion euros compared to what was paid under IRPH plus its differential ». All these estimates are based on the credits granted fifteen years ago, until the moment that there are public records on concession referenced to IRPH, which in fact coincide with the years of greatest activity recorded in mortgage concession.

From Afi they point out that these estimates are about means and that, as such, “summarize the average of individual situations in which the differences may be greater, or in situations in which it may be less or even negative, such as those mortgaged in that the rate on your IRPH mortgage plus your differential has been temporarily lower than the one corresponding to Euribor plus 75 basis points ».

. (tagsToTranslate) banking (t) maneuver (t) mortgages

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