In recent years, Spanish banks have accelerated the sale of assets that did not add value, such as the brick absorbed by the real estate crisis of 2008. Foreign investment funds have given a good account of these assets, with operations that have been carried out with an infinity of land and houses at prices with a sharp reduction. Although the situation is no longer what it was just three years ago, the future largest entity in Spain, if the merger between Bankia and CaixaBank were completed, it would still start with almost 5,000 million euros in toxic brick.
Manuel García: “There was already a cut two years ago of more than 4,000 people in Bankia and CaixaBank. It is complicated like this to talk about exits “
In the absence of knowing the figure at the end of the third quarter, which ends this month, the balance sheets of both entities in the first semester provide this data. Specifically, both add 4,907 million in real estate assets, known in the financial jargon as foreclosed, that is, from defaults by promoters or mortgage clients. Of the total, 3,070 million are on CaixaBank’s balance sheet and 1,837 million on Bankia’s, according to the aforementioned accounts for the first half of this year. That is the net value of these assets, but the gross value, before applying certain accounting adjustments, is 6,780 million euros.
Spanish banks have been shedding these assets in recent years, urged by regulators who requested that banks’ balance sheets be more healthy and non-performing assets be put up for sale. This is what Santander, BBVA or the company itself have done CaixaBank, which in 2018 announced the sale to the Lone Star fund of much of his exposure to the brick inherited from the financial crisis, including his real estate ServiHabitat. For this reason, in just three years, the sum of the Catalan and the rescued entity in terms of this type of assets has been reduced by half.
For its part, Bankia informs in its latest accounts which has Haya Real Estate, real estate manager of the Cerberus fund, in charge of managing and selling these foreclosed assets, under the supervision of the entity. The entity points out that its policy is to gradually dispose of these assets, although it recognizes the current difficulties in the real estate market as a result of the COVID-19 crisis. It is indicated in their accounts that in the first half of the year they barely disposed of assets for 47 million, a figure much lower than that obtained in the same period of the previous year, and that they attribute the brake in the real estate sector due to the coronavirus. In addition, the group points out that it has provisions to cover risks related to the brick that remains on its balance sheet of more than 700 million euros.
In the case of CaixaBank, in the first half of the year it sold real estate assets valued at 151 million euros, as contained in its financial report for June of this year. In this document it also indicates that it has 973 million euros of its real estate assets for sale, while the rest, slightly less than 2,000 million, are listed as its rental portfolio.
If we look at the current origin of the almost 5,000 million in real estate assets that both entities would add if they merged, just over half, some 2,800 million euros (1,742 million CaixaBank and 1,087 million Bankia) correspond to “real estate assets from acquisition financing of housing “. That is, to foreclosures. The rest corresponds mainly to defaults by real estate developers, which amount to about 1,300 million euros.
Risk of a new real estate crisis
Despite the high number of brick in its balance sheets, this week Moody’s agency downplayed the quality of the balance sheets of the resulting entity. Specifically, it pointed out that the union of Bankia and CaixaBank would have a weight of those known as NPA, a magnitude that adds the aforementioned foreclosed assets and doubtful loans, of 6% with respect to the group’s total assets. “Both banks have substantially cleaned up their balance sheets in recent years,” the rating agency noted. Although in his analysis of the operation he issued a warning, ensuring that this magnitude could be increased again due to the economic crisis when the Government begins to lift protective measures implemented because of COVID-19.
The European Banking Authority (EBA) celebrated at the end of last year in a report the progress that Spain had made to clean its balance sheets of what is called “non-productive credits” (NPL in its acronym in English) and which refers to those credits and instruments whose collection is in doubt. Specifically, it pointed out that between 2015 and 2019, 81,000 million euros had been eliminated from the balance sheet of Spanish banks, only Italy in that period had cut this magnitude further. Its weight in the total balance sheet of Spanish banks is 3.5%, which, despite the cut in half in just four years, is still slightly above the European average, which is 3%.
Although, like Moody’s, the two entities warned in their accounts for the first half that the coronavirus crisis could bring with it an increase in delinquencies. “The group faces several risks, common to the entire banking sector, which are linked to the future evolution of the pandemic, such as a possible significant increase in non-performing loans,” Bankia pointed out in its results for the first half of the year. “It is to be expected that the weakening of the financial situation of families and companies will have repercussions, in a significant rebound in non-performing loans,” said CaixaBank. It remains to be seen whether this risk translates into an increase in real estate assets foreclosed for non-payments in the future or whether measures such as mortgage moratoriums and other public support prevent this scenario.