Bad Spanish Bank: SAREB

El Mundo has:

The idea behind the bank is that distressed loans can be handed off to this bank after a haircut. It is expected to yield 15% on equity, due to severe haircuts.


We are talking an average rebate of 63%. Building land 79.5%, buildings under construction 62.3%, finished buildings 54.2% and loans to developers 45.6%

That is paying 20 to 50 cents on the dollar for these loans.

This bank should live for 15 years maximum.

Bankia, Catalunya Banc, Novagalicia Banco y Banco de Valencia – al banks in FROB (the public dustbin bank) – will transfer 45 bio. EUR worth of “bricks”. After that banks that have received public aid should transfer other 15 bio. EUR. Estimated potential volume is 90 bio. EUR.( And NO I don’t know if it is before or after impairment.)


The idea is neither new nor bad!

Those properties in the dead banks have to be turned over to the investors. The deposits that have fled the country must have something to return to. The existing banks can never regain credibility.

New types of investments must be set up – and new banks. To expect investors to throw good money after bad is naive. But a bank or other sort of property Investment Company that have property reasonably valued so they can rent the apartments at an attractive rate could attract fresh capital. The only danger is that the rent will be so low that property prices will resume their plunge. This is however in Spain’s case a moot point! Take a look at the post-diluvium index:

a) In some countries like Ireland and the USA prices seem to have stabilised for the moment after a cut in prices of about 1/3 from the top.

b) Denmark is still under the illusion that they can hold prices at 80% from the top.

c) Germany hasn’t reached the top yet – for various reasons.

d) Now Spain (and Greece) is spinning out of control passing 1/3 cut at increasing speed the overbuilding in Spain is such that there is 1½ dwelling pr. household, so prices can’t be controlled!

The only misgiving is if the cut to half price is enough to secure an interesting rent with youth unemployment passing 25% in Spain the question is if there is enough interested. The other task is to finish construction of buildings where they dropped tools when the money ran out – thus the cut to 2/3 price so there is a chance derelict construction sites can actually regain just a sliver of value. The move does only a small percentage of the total property in Spain my off the record guesstimate is in the order of magnitude of 1%.

The object of this exercise is NOT to do something about Spain’s housing market, though even this modest effort will have an impact: The object is to persuade some deposits to come back to relieve the pressure on the 100 bio EUR emergency loan from the ECB. The longer term aim is to bring the money within reach of the tax man because those bank losses will have to be paid by someone – that is however tomorrows worry.

The move will lead to a slimming of balances in the garbage can bank. It will give some fresh capital into the finance sector – be it in mortgage bonds or other type of investments – or sanguine hope: Bank equity. We know from Denmark that about 1/3 of medium term sovereign bonds (1-10 years of maturity) are owned outside Denmark – those are the bonds that are in so short supply that interest rates are below German Bundesanleihen. So we know what maturity those deposits are interested in – which is typical rental real estate.

The next move is to keep the supply up to these new institutions which is presumably to be achieved by keeping the credit squeeze up on the banks – forcing them to hand over loans with proper impairments as collateral and take recourse as the banks naturally can’t pay back the loans – and then sell off the property to these new institutions.

How is the Spanish housing market ever to return to “normal”? Simply put: NEVER! The insolvency issue will eventually be resolved by the grim reaper and the estate. Spain will have to adjust to the fact that home ownership is a thing of the past – just like Germany had to adjust after WW2. The outstanding question is how quickly this can be done.


El Pais has:

The additional information is that SAREB was a demand from Brussels for the financing of the dead Spanish banks.

That figures – and confirms the object is to return the deposits that has fled Spain!