This page has been archived and commenting is disabled.
Of Spain's "Bad Bank" Foreclosed Properties, Only 6,000 Of 83,000 Units Have Tenants
There is a reason why Spain's "Bad Bank" has that name (its official designation is far more jovial: SAREB) - because it is full to the brim with "assets", mostly residential loans, that no longer generate cash flows, and which are capitalized increasingly more with taxpayer cash. How much assets? At last check some €50.7 billion. The problem is that since real, documented cash flows from the real economy, not the fake, made up one reflected by various stock indices, are what funds (or don't as the case may be) said assets, the liabilities will soon be in need of more equity infusions. Specifically, there is a total of €50.7 billion in liabilities consisting of senior debt, and an equity capital buffer of €4.8 billion. Alas, this liquidity buffer will hardly be enough as more and more loans are defaulted on and turn "non-pay" (i.e., the rise of NPLs drowns out the "reserve"), while cash has to be paid out - constantly - to satisfy the liabilities cash interest demands.
So just how bad is the NPL picture for the SAREB? Reuters has the most recent breakdown which is as follows: "Of its loans, only 22 percent are considered "normal"; 34 percent are rated "substandard" and 45 percent "doubtful"." The "normal" loans are linked to finished products which arguable are easier to monetize, and yet there has been zero end-market demand for said "assets" despite a global central bank liquidity injection that has made the global credit carry trade the only game in town. The reason there is no interest is that there simply is no chance these assets will generate the needed cash flows to make any cash on cash return a possibility:
Most of the loans are linked to finished properties, for which it might be easier to find a buyer, but 4.3 percent are for unfinished developments and nearly 10 percent are for empty lots, for which there is little or no demand. Nearly all of the foreclosed properties in its portfolio are empty, including apartment blocks far outside big cities. Only 6,000 of nearly 83,000 housing units have tenants.
Keep in mind that in Spain, unlike the US, mortgages are recourse, and thus walking away from one is far more complicated than it is in the US. It means the bank can "pursue and pursue" the borrowers until it gets paid back in full.
Most importantly, it also means that by the time a borrower is in default on their mortgage, they have already defaulted on virtually all other debt in their possession, very much unlike in the US where defaulting on one's mortgage is usually the first thing a financially troubled household will do.
The logical next step is what has been clear since last summer when Spain announced the first bailout of its banking system: what it has provisioned for future losses will be far less than the final shortfall. From Reuters:
Spain's bill to bail out its banks may yet rise, some bankers and analysts fear, as a worsening economy hampers the government's early attempts to sell off nationalized lenders and threatens the "bad bank" housing their rotten property deals.
The 8 percent capital cushion may however be too thin to withstand losses without a top-up, which could be hard to source from the private sector, said several senior Spanish bankers and investment bankers who have worked with the government.
"It was a big mistake. The government is going to have to take over the entire vehicle sooner or later," said a Spanish banking executive, on condition of anonymity, echoing a view from three other senior bankers.
If the liabilities of the bad bank, known by its Spanish-language acronym Sareb, were to be put on the state's balance sheet, it could add up to another 5 percentage points of GDP to the country's debt, pushing it to more than 100 percent of annual output. Spain's economy ministry declined to comment.
What is most ironic, and shows just how short-sighted market "thinking" has become, is that while no one is willing to purchase the SAREB's NPLs outright, they are more than happy to buy them indirectly when covered by Spain's "sovereign" wrapper, which in turn is funded by an implicit German guarantee. Because should Spain fail to fund its deficit and its insolvent banking sector, the Euro is done. And while it is unclear if German resentment of a periphery which has now officially declared austerity dead and buried, is enough to tell it there is no longer any guarantee to fund a profligate lifestyle, what is clear is that the deteriorating Spanish economy will need much more capital to funds the rug under which it has so far swept the bulk of the financial biohzarad in its economy.
Sareb does have a contingency plan for shoring up capital, which involves restricting eventual dividend payments to shareholders, the source said. Otherwise fresh capital will have to come from investors - the state, or sound banks, some of whom had came under pressure from the government to invest.
A spokeswoman for Sareb said "the contingency plan is the sales plan", which entails selling almost half of assets over the next five years and paying down half of the debt.
Sell NPLs to whom? Not even Japan is (hopefully) that stupid, and this despite being able to fund Spanish purchases at absolutely zero cost courtesy of the BOJ's latest monetary expansion.
While most banks maintain they have stocked up on enough capital to counter growing provisions for losses, a handful of analysts still believe some will have to do more to ward off problems outside the real estate realm.
The Bank of Spain on Tuesday tightened the rules on how banks classify bad debt in cases of refinancing, in a move that could force lenders to recognize more bad debt.
Ratings agency Moody's had forecast last October that banks had a 100 billion euro capital gap, rather than the 54 billion euros projected by Oliver Wyman in its stress test.
"Despite all the developments, it's difficult to see that all of that 100 billion euros is cancelled out," Alberto Postigo, analyst at Moody's, said.
Actually the final number will be far worse. The reason, as in the case of Cyprus, as in the case of Slovenia next, as in the case of every European country where the broader population is increasingly shifting to the shadow economy, is a simple and recurring one: non-performing loans. And as the following chart from BofA shows, when one strips away all the shiny veneer, the real problem in Europe is only getting worse.
»
- 13018 reads
- Printer-friendly version
- Send to friend
- advertisements -
Sounds like there is plenty of "retail space" for an "underground economy" to me. Just trying to be optimistic here folks.
... and those 6,000 are squatters.
Maybe China's government pensions can find yield in Spanish assets?
One country, two systems...
Sounds like the US. Teachers and police are getting $100,000 pensions while the private sector gets $10,000 or $20,000 Social Security, if that.
By Kelvin Wong - Apr 22, 2013http://www.bloomberg.com/news/2013-04-22/hong-kong-home-prices-to-declin...
If you dont have a job, you can't exchange fiat for rent.
Sorry, Blackrock...
Less occupying
More fucking fools up
Time to house shop in Andalucia?!
Maybe rent or long term lease.... aviod the tax aspect, property, residency, etc
Best to let the coming social disorder and violence subside first...then, buy....after a few thousand protestors are in the ground....6-9 mos...at the outside
I hope their balance sheet has something other than Spanish residential mortgages on it, because I don't think there are 83,000 houses in all of Span, much less on a single bank's balance sheet, that could have an average "valuation" of over 600,000 euros.
The only thing holding Spain up is central bank action. Eventually, this will fail, and the consequences will be severe.
http://dareconomics.wordpress.com/2013/05/06/around-the-globe-05-06-2013/
Dare, The whole world is being held up by central bank action.
And yes the consequences of their failure will be catastrophic.
yeah. Can't say there's a whole lot of worth in this site. Endorsing fiscal spending in a recession while "people get their shit together" (paraphrasing), isn't exactly what I would call daring.
6000 more than chinas ghost cities...
can someone please explain the NPL ration grapsh please? In summary, what does the circle encompass exactly? I can see 2 banks that caught my interest. Anyone, please?
Percentage of non-performing loans relative to other banks and average line.
Tons of empty houses over there...my friend's son just got back from Spring break there.,....he said entire suburbs empty...like the ghost cities of China.....spooky....
Looks the 'Build it and they will come' dream didn't come true...
If they would just break all the windows out of them, they'd at least have some economic stimulus.
Bullish for Bankia sub bonds!
wtf? i guess the old saying, "mi casa es tu casa", is somewhat appropriate, no?
College kids could get a nice summer vacation offering to condo sit to make these developments look occupied.
The vandalism losses on these empty places must be horrible.
A copper miners delight.
copper recycling
Nice to see the IBEX reacting positively to this serious news and rallying after hours
No deadbeat depositors who made unsecured loans otherwise known as deposits were harmed in the making of this bad bank.
SAREB - anagram for BEARS?
Not bullish.
bullish? just needs an "IT" to be complete
Minor point of contention, in America, there are plenty of states that allow recourse loans (and banks that take them up on the proposal)... california, fine, not so much, but that isn't the rest of the country.
This may just be me being stupid, but I thought the whole point of SAREB/"El Banco Malo" (from the government's point of view, not the ESM's) was to use ESM money to offload risk into one institution that could fail without taking down anything important with it. Not that said instutition would get backstopped to infinity and beyond, but that it was designed to fail as a pressure relief, letting the cajas that made the loans in the first place stay solvent.
I have only one property in the U.S. (in Ft Lauderdale, FL) and yes its value has significantly increased lately. The problem is that while the rent I collect has gone up, the property taxes and insurance have also risen thereby eliminating increased earnings - still at this time I have no complaints. As far as putting more money into real estate, I cant see doing it in the USA - I think when the imminent economic colapse finally happens, one of the only places the government is going to be able to increase its revenue (besides bank bail-ins) is through increased property taxes (which are already among the highest in the world). In any case, ¨Buy low sell high¨ also applies to real estate and right now US real estate prices are nowhere near the lows we could see as soon as this Fed/Bankster inflated real estate bubble (limiting supply) pops. Obviously there is money to be made ¨Flipping¨, but as far as property to hold for the longer term I believe many other places (like Spain) are a much better investment (Property values are at new lows), not having increased at all since the crisis began like in the US. I recently bought a small 3 bdrm 2bath condo (1100 sq ft) right on the Med (outside of Malaga) for €150k (less than $200k) which was sold new 6 years ago for almost three times the price. The best part is that property taxes, insurance and homeowners association are only a combined $200 per month. I´m not quite ready to put alot more into real estate in either Spain or the U.S. with the world economy the way it is right now, but for anyone who thinks they have enough Gold/Silver and is looking to diversify into other long term investments I would certainly look into buying at Lows in Spain before buying in the U.S. at the current reinflated prices. Final words, If you´re not sure then stick with Physical Metals, especially at current prices you cant go wrong.
I'd advise caution - they have only just started putting property on the market at clearing prices, and there is a hell of a lot to come. In the area around Malaga there is simply far more supply than demand. €150k does sound very cheap, but I don't expect a rebound for a long time. The retiring expat community really drove this market over the last decade and I don't expect them to come back. The other thing is you might find you have an appartment in a condo which is totally deserted, or on an unfinished building site. If something goes wrong with water, elec or drains, good luck getting it fixed...
The atmosphere in Marbella i think is much better for the beach, town and nite life - Malaga has the airport but the coast isnt very pretty - going east makes more sense for long term value and still will get cheaper
as to florida - south of Ft Lauderdale - especially beginning in Sunny Isles - south on collins ave beach side - will have demand from all of south america as well as russians and the states for the next ten years - upside will be there prices per square foot way up many new buildings going up
people still dont understand why all this housing was built around the world....derivatives...! the banks needed something to use in rmbs/derivatives. the banks/builders never intended for anyone to actually live in this housing....derivatives........derivatives........derivatives........derivatives........derivatives........derivatives........derivatives.....
...derivatives........derivatives........derivatives........derivatives........derivatives........derivatives........derivatives.....
...derivatives........derivatives........derivatives........derivatives........derivatives........derivatives........derivatives.....
...derivatives........derivatives........derivatives........derivatives........derivatives........derivatives........derivatives....
....derivatives........derivatives........derivatives........derivatives........derivatives........derivatives........derivatives....
....derivatives........derivatives........derivatives........derivatives....banks need paper to sell.....!
Hell Spain will give you a passport if you buy a home or property!! Spain must be on hard times indeed to offer this.
Maybe we can invest in their banking as well LOL! Oh I fogot Spain took pensions a while back.
This is really getting scary.