The Malaysian Insider :: Breaking Views
The Malaysian Insider :: Breaking Views |
| Spain’s bad bank swerves critical questions Posted: 07 Dec 2012 08:13 AM PST  Part of a neighbourhood of 189 unfinished chalets, financed by Spanish savings bank CAM, is pictured in Cala Romantica, on the Spanish Balearic island of Mallorca, December 1, 2012. — Reuters pic It will open SAREB, which will ultimately house around 60 billion euros (RM238 billion) of rotten real estate loans, properties and deserted tracts of development land built up by Spain's ailing lenders, by the end of the year, but many of the details on how the assets will be managed and sold are still being hammered out. The good news for its architects is that it has raised the 2 billion euros in private capital it needed by the end of December, a source with knowledge of the process said. However, the hunt for external investors has been fraught, and the target was only met after Madrid leant on Spain's biggest financial institutions to make big contributions. Banks Sabadell and Santander and domestic insurers Mapfre and Mutua Madrilena have now said they will participate, while international groups with a presence in Spain, such as European insurer AXA, are also looking at investing. A person familiar with the matter said Britain's Barclays would also invest. But other top Spanish players such as BBVA are resisting, and some of the foreign investors Spain was hoping to attract, such as private equity firms or sovereign wealth funds, are unlikely to look at participating until February or March, bankers familiar with the talks said. Most want more clarity on the assets to be transferred into SAREB, their value and how sales of the loans will eventually be financed, the bankers said. Even as the first transfer of assets looms, many of these elements have yet to take shape. Under the scheme, which is based on Ireland's experience in restructuring its banks, solvent lenders move bad loans and repossessed property into the new entity at a discount to their face value and receive state-backed bonds in return. "There are huge logistics involved. You need lawyers, infrastructure, technological servicing. That is not set up," said a banker advising potential international investors in SAREB. "Our feeling is it's complete chaos." Four nationalised lenders — Bankia, Catalunya Banc, NCG Banco and Banco de Valencia — will dump 45 billion euros of discounted assets into SAREB by year-end. The lenders will also receive 37 billion euros in European aid to plug the capital holes created when a property bubble burst almost five years ago. Spain needs to keep its share of the 3.9 billion euros in start-up equity for SAREB to below 50 per cent to reduce the burden on public finance. Eventually, SAREB will have 5 billion euros in equity, with at least 2.6 billion euros to come from private investors. Most of that will be in the form of subordinated debt, with investors also potentially able to put in assets rather than cash to make up the capital, but such debt carries a risk of being wiped out but no upside in the event of a rosier outcome. Valuation doubts The haste to set up SAREB, to meet the conditions of Spain's banking bailout set by Europe, is in part what has put investors off taking equity in the enterprise. In other instances of bad banks, such as Ireland's, loans were valued individually before transfer, but in Spain's case, it is assigning value to portfolios of loans because of the sheer volume and range of assets involved. "It's a proposition that makes little sense; you would be investing blindly," said Manuel Anguita from Aguila, which brokers deals between banks selling assets and investors. The rush also led to confusion over the valuations. Some top Spanish bankers and advisers involved in the bailout were caught off-guard by a gap between how Spain planned to value those assets and the valuations the European Commission said it would use last week, which imply steeper discounts, said two sources involved in the bad bank negotiations. "It was a bit of a surprise," said one. "Had we known sooner, we might have used different transfer prices." Financing hiccup? Once it is up and running, there are also questions over how soon SAREB will be able to start selling assets, with some bankers predicting that might take until the end of 2013. SAREB may initially have to rely on existing teams at Bankia and the other banks involved to keep managing their portion of toxic assets, two sources familiar with the process said, adding servicing agreements were being worked on. At a later stage, parcels of loans could be analysed in more depth as they are prepared for sale, a third person said. Even then, there are worries that undeveloped land, some of it now worthless, or incomplete developments that will have to be torn down, will be hard to sell. To buy foreclosed properties, investors often seek loans, plus guarantees that eventual buyers of the homes will get mortgages, which they can sometimes get from the selling bank. Negotiations over how Spain's healthier lenders might be able to finance these acquisitions are underway, one of the sources close to the process said, while another said there were plans to find a way for SAREB itself to be able to develop unfinished properties or land. Other issues related to information disclosure procedures and insufficient tax breaks have also put off international investors, the sources say. Next year, the company set up to house SAREB will formally become a fund, and tweaks to its structure could resolve some of these questions, while new tax rules will take effect. Even so, the field of potential equity investors is small. SAREB is targeting a 14 to 15 per cent annual return on equity over its 15-year lifespan, but with doubts about how soon it will be able to get close to that, funds needing to make short-term returns might give it a wide berth. "There has been a lot of interest from international investors. But it's hard to know how much of that is real," said one of the bankers. — Reuters |
| Greek banks seek buyback approval as deadline nears Posted: 07 Dec 2012 08:04 AM PST  International Monetary Fund (IMF) Managing Director Christine Lagarde speaks during the conference "Growth and integration in solidarity: what strategy for Europe?" with top financial officials at the Economy ministry in Paris November 30, 2012. — Reuters pic The buyback scheme, in which investors must declare their interest by today, is central to efforts by Greece's euro zone and International Monetary Fund lenders to cut its debt to manageable levels by 2020. Athens has pressured its banks, which hold an estimated 17 billion euros (RM67 billion) of bonds out of the 63 billion eligible for the buyback, to sell and promised to shield them from any lawsuits by shareholders over losses from the scheme. The government has no plans to extend the deadline for bids beyond today, finance ministry officials said, dismissing a Greek newspaper report suggesting the deadline could be extended to early next week. The country's four biggest banks have each asked their boards to approve up to 100 per cent participation in the deal ahead of the 1700 GMT deadline, two banking sources said. "The proposals by banks to their boards were positive on the buyback offer, asking for approval to participate by up to 100 per cent," said one banker, who declined to be named. Board approval does not necessarily mean the banks will offer all of the Greek bonds they hold. "All proposals (to bank boards) were positive, saying the offer is beneficial," the second banker said. The buyback is part of a broader debt relief package worth 40 billion euros agreed by Greece's euro zone and International Monetary Fund lenders last month. Under the scheme, Athens aims to spend 10 billion euros of borrowed money to buy back bonds far below their nominal value, in a bid to cut debt by a net 20 billion euros. Athens made the offer on Monday on more attractive terms than expected for investors, boosting expectations that enough bondholders will take part to ensure the deal is a success. "Patriotic duty" Finance Minister Yannis Stournaras, who has told banks it was their "patriotic duty" to ensure the scheme is a success, told local radio Athens would include a provision that protects bank boards from lawsuits from shareholders in case of losses. "There will be the same provision that was included in the PSI (earlier debt restructuring)," he told Real news radio, referring to the March debt swap where Athens passed a law shielding bank boards from investor lawsuits. Greek banks — already battered by the country's debt crisis — have been hit further by fears that they would be forced to book losses from the buyback. But they are expected to participate because most of the more than 30 billion euros that Athens stands to receive in bailout funds once the buyback is completed would be used to recapitalise them. The price range set for the buyback by Athens varied from a minimum of 30.2 to 38.1 per cent and a maximum of 32.2 to 40.1 per cent of the principal amount, depending on the maturities of the 20 series of outstanding bonds. Prime Minister Antonis Samaras has already said Greek pension funds holding more than 8 billion euros of the bonds would not take part, increasing the pressure on the remaining domestic bondholders to do so. The buyback is the latest in three years of euro zone efforts to resolve Greece's problems. The economy has shrunk by 20 per cent in the last five years and unemployment has surpassed Spain's to climb to a record 26.2 per cent. Two in three Greeks have a negative opinion of the pro-bailout government, a survey by Metron Analysis published in the Efimerida Syntakton newspaper showed today. If elections were held now, the main opposition party SYRIZA would win with 22 per cent of the vote over the co-ruling New Democracy party, which would only muster 19.8 per cent of the vote, the poll showed. — Reuters |
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