Spanish Banks Start to Unload Property Portfolios

Discussion in 'Wall St. News' started by ASusilovic, Dec 30, 2009.

  1. MADRID—Spanish savings banks have begun selling off the large property portfolios they acquired as collateral from loan defaults, in an effort to improve solvency ratios, a move that risks further falls in property values that could impair the value of their asset books.

    In Spain, the global financial crisis that erupted in 2007 ended a real-estate and construction-based asset boom, plunging the country into a recession that has yet to end, even as many other European economies have returned to growth.

    As the unemployment rate has soared to more than 19%, residential-property buyers have defaulted on loans in massive numbers, as have property developers, overleveraged in a moribund market. As lenders have assumed the collateral on defaulted loans, local financial institutions—particularly unlisted savings banks—have collected properties valued at about €8.5 billion ($12.2 billion) over the past 12 months.

    So far the banks have held on to the vast majority of these properties, hoping an eventual economic recovery will allow the disposal of these assets at acceptable prices—a strategy they successfully adopted during a recession in the early 1990s. Accumulating properties also stopped a sharp drop in prices, avoiding the painful write-downs banks are required to book when the value of their assets falls.

    Until now the strategy has worked. Spanish property prices have been unusually resilient. Average prices have dropped by a modest 9% over the past 12 months. In the last five years of the housing bubble, average prices jumped 71%, according to Housing Ministry data.

    But now banks are facing new demands for liquidity that will force them to sell more property. They are drawing up sales strategies, creating real-estate management divisions and offering discounts in an effort to lure buyers.

    Solvency pressures on the banks come from several directions. First, the downturn has meant smaller inflows of cash held in deposits and bank accounts. Second, the Bank of Spain recently required local financial institutions to set aside more money to cushion potential losses from a drop in the value of repossessed properties. Banks must now set aside 20%--up from 10%--of the value of a property held on their books for more than one year. Finally, a big restructuring of the savings-bank sector is in the cards, for which banks need funds to clean up their loan books.
  2. Crazy shit. I hope the US federal reserve doesn't adopt the same policies. This will for sure, cripple the economy in Spain, and in the US.
  3. The problem in Spain is that in many regions newly built properties coming to the market are cheaper (!) than existing, resale properties.

    It appears to me that many sellers haven't really been forced into liquidation yet.
  4. checked the other day some properties near the sea around Barcelona, prices are still unbelievably high.

    Combine this with the fact that prices are expressed in an overvalued euro and very few people have the means to afford these properties.
  5. Submit a buy offer 30 % below listing price ! You should receive some interesting reactions !:p
  6. indeed, that would be a minimum. Best to wait, with Greece, Portugal and Spain dragging down Europe, there should be some bargains at some stage.

    I will need to assess the political situation first. What's the point of buying something you won't be able to enjoy...

    Looking for extreme stress sometime in 2010...:eek: