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Banks’ Risk at €217b may Bring Better Opportunities for Buyers

Well, 2011 starts at least with an exercise of honesty and transparency in the Spanish market – at least we hope. After January, with banks and saving banks (Cajas de Ahorros) having disclosed their property balances and risk exposure, the final figure of distressed property assets and risk exposure in financial entities stock is €217,000 million (updated to January 2011).

It means €36,000 million more than expected in June 2010 when the estimation was €181,000 million.

According to the Bank of Spain (Banco de España), risky loans to sub-prime borrowers are valued around €28,000 million and banks’ repossessions are worth €44,000 million. The total risky property exposure is €99,820 million (46% of the total €210,000 million).

The Governor of the Bank of Spain, Mr Fernández Ordóñez, has also confirmed what everybody knows: better to keep an eye on the property business to stabilize the situation and try to straighten it up. Mr Fernández said that the banks have fully carried out of practices of transparency and that the figures are reliable in order to work with them to improve the situation.

The final figures, one by one

Banco Financiero y de Ahorros is the financial entity with a higher volume of property repossessions (€ 11,048), followed by Banco de Santander (€ 7,509 million), Catalunya Caixa (€5,435 M), BBVA (€ 4,793 M ) , La Caixa ( € 4,651 M), Banco base (€ 4,208 M), Banco Popular( €3,689 M), Novacaixagalicia (€ 3,525 M), Mare Nostrum (€ 2,949 M), Banco Sabadell (€ 2,880 M ) Unnim (€1,985 M), Caja España Duero (€1,083 M ), Unicaja (€ 985 M) as the most relevant entities.

As mentioned, the largest stock belongs to Banco Financiero y de Ahorros, which is a new entity as the result from the merge of Caja Madrid, Caja Segovia, Caja de Avila, Bancaja, Caja Insular de Ahorros de Canarias, Caixa Laietana and Caja Rioja.

Bancaja was the most important entity in “Comunidad Valenciana” (Valencia Community)  in regards to the number of branches, where property prices have suffered the most dramatic drop since the crisis broke out.

Banking system reform in progress

Spain is going through a banking-system restructure that should end up with all the savings banks becoming listed banks.

These are the current savings banks: Banco financiero y de ahorro, Caja Tres, Ibercaja, Unicaja, La Caixa (future Caixabank), CatalunyaCaixa, Banco base, Banca Cívica, Novacaixa Galicia, Mare Nostrum,  Caja Espanya Duero, Unnim, BBK/Cajasur, and Kutxa.

Three savings banks have announced to become banks by summer: La Caixa, Banco Financiero y de Ahorros and Banco Base (formed by the former CAM, Caja de Extremadura and Caja Cantabria).

The reform needs to clear the balance of the savings banks. According to analysts at Evolution Securities (20th Jan), savings banks need €50 billion to back their assets and operations. It is time to raise money and to negotiate with foreign investors. We heard that Barclays is interested in the Spanish savings banks stake: Welcome!

A foreign bank may come with a large property investment group.

Less mortgage lending in 2010…. and it does not look good in 2011

For first time in more than 10 years, mortgage lending in Spain dropped by -2.06 % in 2010, according to the Spanish Mortgage Assotiation (AHE). Lenders are very cautious and will remain alert in the next months until the “dirty laundry is washed”.


  • Week after week the property business becomes a bigger burden for a banking system that needs to move on. The figure is always bigger and the economic climate seems worse: unemployment, rising interest rates, less lending …
  • 46% of the property business in which Banks are involved is high-risk according to the Bank of Spain. From our modest understanding (I mean, high risk will only be eased by releasing the burden: selling assets even if losses are higher than expected.
  • The selling pace does not seem to be the right one because in 2010 the banks sold nearly 25,000 properties in Spain, according to an article released by in February. 25,000 properties is not enough. In 2010, more than 118,000 properties were repossessed… and certainly there will be more repossessions in 2011 with the interest rate rising. The mortgage-debt risk expected by banks and savings banks is somewhere between 16% and 19% according to our understanding of the banks’ risk exposure disclosed in January.
  • Lower credit and a higher interest rate do not seem to encourage either lenders or borrowers. The market can only be reactivated by lower pricing: lower selling prices. Sellers, including banks, are open to offers – this is the policy of La Caixa and that is the reason why it has been the biggest seller in 2010.

IT IS CLEAR TO US THAT SELLING PRICES SHOULD DROP A BIT FURTHER at least until September. But final selling prices drive the market … not the asking prices.

We believe that in cities the drop will be much lower than on the coast, but buyers definitely have a say in the selling price.

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