During recent months and in line with the new assets valuation accounting standards approved by the Bank of Spain in October 2015, the Management Company for Assets Arising from the Banking Sector Reorganisation (Sareb) has carried out an in-depth valuation of each one of its assets that it acquired at the end of 2012 and 2013 from the nine contributing banks that received public funding. This valuation exercise, carried out adopting a new methodology, has revealed capital losses in the amount of EUR 3,012 million, which the company has preceded to write-down.
In 2013 and 2014 the company had already made advanced provisions of EUR 968 million, hence this additional action amounts to EUR 2,044 million.
As formerly mentioned following the publication of the valuation standards, Sareb has used the buffer provided by its shareholder equity, thus avoiding the need for further capital input contributions. Hence, Sareb will convert EUR 2,171 million of its subordinated debt in to capital, which will be submitted for shareholder approval at the General Shareholders Meeting, to be held next May.
The new assets valuation accounting standards, which makes it compulsory for Sareb to value all of its assets individually and on a regular basis, also makes it compulsory to retroactively apply the write-down and re-draft the accounts of the previous financial year. Hence, almost 90% of the provisions apply to the first two years of the company's operation (2013 and 2014).
Business in 2015
From an operational point of view, the 2015 financial year was very much about the coming on line of the four servicers that Sareb instructed to manage its assets at the end of 2014: Altamira Asset Management, Haya Real Estate, Servihabitat and Solvia. Over the course of the year a complex process of technological migration was carried out between the former contributing banks and the four new partners, which involved the transfer of 4 million documents and more than 350,000 keys, linked to 105,000 properties, 80,000 loans and 375,000 guarantees.
As expected, the gradual migration process led to a temporary slowdown in property sales rates compared to the previous year. Consequently, the company's overall turnover decreased by 26%, to EUR 3,886 million.
The majority of revenue originated from the active management of the financial assets –developer loans- which Sareb acquired from the contributing banks, and which currently accounts for 72% of the portfolio. Business activity particularly focused on loan cancellation, amortization and sales, as well as sales plans agreed with the companies, which combined, contributed almost 60% of revenue.
Property sales, across the various asset classes, accounted for 21%. In terms of units, during 2015 Sareb sold a total of 11,256 properties via its retail channel. 75% of these property sales were made in Madrid, Andalusia, Catalonia and the Community of Valencia.
By asset class, land came in first place for property sales income, accounting for 44% of the total, ahead of residential sales that stood at 42%. Industrial and logistics accounted for the remaining 14%.
Loan management and property sales allowed Sareb to cover its operating costs, which amounted to EUR 612 million, which primarily comprised the management and administration of its assets and tax payments. Sareb also took the necessary action for allowance provision for 2015, which amounted to EUR 337 million. After these two operations, Sareb recorded a positive operating income figure of EUR 237 million, 149% more than in 2014.
Financing costs in 2015 amounted to EUR 709 million, which generated pre-tax losses of EUR 472 million, 53% less than the previous year. Net income for the financial year amounted to a profit of EUR 330,000, due to the tax credits generated by the write-down action relating to the portfolio.
In the opinion of Sareb's Executive Chairman, Jaime Echegoyen, "In 2015, the company has had to confront the combined effect of a change in assets accounting valuation standards and the complex and laborious process of migrating its assets. Both of these factors have had an effect on our profit and loss account and have compelled us to readjust our market approach strategy for the upcoming years. The new regulation requires us to make a greater effort with regard to the management of capital, margins and provisions when it comes to divesting our assets".
During its three years of being operational, Sareb has reduced its overall portfolio by approximately 15%, it has generated total revenue of EUR 12,801 million, and has repaid EUR 7,300 million of the debt it issued to acquire the assets, which initially amounted to EUR 50,781 million. In 2015 alone, Sareb made repayments of EUR 2,051 million.
From a sales point of view, it put 35,250 properties on the market, and has managed close to 28,000 proposals from development companies that hold debt with the company and which are primarily SMEs.
Change of member of the Board of Directors on behalf of Banco Santander due to the departure of Remigio Iglesias
Remigio Iglesias, former Managing Director of Banco Santander and to date the member of the Board of Directors on behalf of Banco Santander, has submitted his resignation, in order to take on new business projects. Banco Santander has proposed Javier García-Carranza, Deputy Managing Director and Head of Restructurings, Real Estate, Subsidiaries and Venture Capital to take his place. The appointment of the new board member will be submitted for approval at the Shareholders Meeting to be held in May.
The Executive Chairman of the company, Jaime Echegoyen, thanked Remigio Iglesias for his work that he carried out and for forming an integral part of the Board of Directors since its founding in 2012. "His experience and good judgement have been one of the guiding lights for the company right from its initial outset up to the present day", he commented.