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A growing number of economic analysts are claiming that Spain's 'bad bank', which will siphon toxic assets off lenders' balance sheets, is unlikely to achieve its aims
12.11.12 - 13:35 -
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Doubts over 'bad bank' plan
The so-called ‘bad bank’ will allow banks to offload real estate assets which include many repossessed properties and developments. SUR
Spain's so-called 'bad bank', which aims to buy up toxic property and land assets in the country in an attempt to clean up the bank’s finances, has been slammed by influential real estate firms, investment analysts and an international ratings agency.
When it becomes operational from 1st December, the new bank, ‘Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria’, known by its acronym SAREB, intends to buy 60 billion euros worth of assets at knock-down prices and then sell them to investors over a 15-year period, offering a minimum return of 14 per cent.
SAREB, part of the 100 billion euro bailout plan for the Spanish banking sector which was agreed with eurozone leaders in June, is expected to apply an average 63 per cent discount on land and properties and an average of 46 per cent on real estate loans, according to Fernando Restoy, who heads the country’s bailout fund.
“SAREB seeks to manage these problematic assets efficiently and conservatively,” says Restoy. He adds that the assets are to be transferred at a price low enough to lure foreign investors into the country’s fragile real estate sector, but “not low enough so as to cause greater losses for the banks which are offloading the assets.”
Spain’s ‘bad bank’ has been compared to Ireland’s National Asset Management Agency (NAMA), which paid 32 billion euros to buy up 74 billion euros worth of toxic loans from five stricken lenders when it was launched in 2010.
However, with the launch date moving closer, a growing number of experts are voicing concerns that the ‘bad bank’ plan is unworkable.
CBRE and Jones Lang La Salle, two of the world’s largest real estate services corporations, predict that SAREB will “fail to attract investors” for much of the land and the unfinished property developments - which account for 60 to 65 per cent of the bad bank’s assets - due to the costs and risks involved.
Instead, a spokesman for CBRE tells SUR in English that “Buyers are only likely to purchase prime location holiday homes and properties which already have tenants.”
Graham Summers, Chief Market Strategist at Phoenix Capital Research, says: “Spain [through SAREB] is offering yet another unrealistic solution to its problems.
“Where exactly is the 60 billion euros going to come from? The country has only received 30 billion euros of the original 100 billion bailout.
“Even if Spain uses all of the 30 billion it’s received in bailout funds to date, there’s still a shortfall of 30 billion euros. And even if the country could get the full funds, they would still not be enough.”
Also expressing doubts on the initiative is the respected global rating agency, Fitch Ratings, which believes that the capital raised by SAREB is likely to be “muted.”
Less capital
A spokesperson for the agency asserts: “The transfer of real-estate assets to Spain’s new ‘bad bank’ by institutions requiring external support will release less capital than originally expected as valuation haircuts are slightly higher than recently introduced provisioning rules.
“SAREB has set an average reduction of 45.6 per cent for real estate loans and 63.1 per cent for foreclosed assets. These haircuts are slightly higher than the level of provisioning imposed by the Bank of Spain earlier this year.”
He concludes: “Although the valuations are reasonable, we think there are still significant challenges for SAREB given the challenging economic climate.”


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