A latest ‘Road Show’ was organised by the Diputacion of the Malaga Province and the Patronato de Turismo de la Costa del Sol, with visits to UK, Russia, Sweden, Bulgaria and Germany. The cost, up to now, 40,000 euros of public money.
There are 40,000 unsold dwellings on Costa del Sol. 1,000 of them were offered for sale in the 5 countries visited. The result: not one dwelling sold.
The other ‘Road Shows’ have not fared much better, only serving to give the less than serious politicians and promoters the possibility to travel and stay in top hotels, eating and drinking in fancy restaurants, all at the expense of the taxpayer.
The grave failure of the ‘Shows’ is a serious warning to the ‘bad bank’ Sareb, which will be saddled with 90 billion euro’s worth of the property mountain.
It may be better to move in the bulldozers now !
Coasting Along on Empty
Lenox Napier
A memorable comment from the Mayor of Almería, Luis Rogelio Rodríguez-Comendador, last week. After receiving yet more rules and regulations on his desk from the Junta de Andalucía to do with building permissions, the mayor described the Junta as suffering from 'legislative diarrhoea' adding that 'local administrations can not be hanging about every day or every month waiting to see what is going on and what are the new rules being churned out for us to have to deal with'. This after the Junta has issued new orders about the Ley de Costas that are diametrically opposed to fresh deregulatory rules just made by Central Government on the same issue.
For some people, the Junta's plan helps to defend the environment, to prevent the deterioration of the landscape and the loss of valuable ecosystems; as well as to increase the quality of the coastal strip against speculation and cement, and that its implementation will benefit tourism and job creation - for others it means exactly the opposite, since it will halt work on all projects located less than 500 meters from the coastline for at least two years, which will further increase insecurity for investors and, therefore, will hurt tourism and job creation.
Jesús Caicedo, Parliamentarian and Mayor of Cuevas del Almanzora, a tourist town in NE Almería, says that he feels 'totally helpless and outraged' towards this new ruling, which, 'supposes the paralysis of everything and scuppers an urban plan adopted and consolidated with much effort and work'.
Eleven municipalities in the province have had their plans to build along the coast squashed by the Junta de Andalucía's planning authority which wants, in short, to 'preserve and enhance' the 500 metres inland from the seashore (Seville, it hardly needs pointing out, has no coastline).
The President of the Andalucian Partido Popular, Juan Ignacio Zoido, said late last week that his party is prepared to take the Junta's ruling to the Constitutional Court in an effort to thwart the decree. He added in a public meeting in Nerja (Malaga) last Saturday that he had warned that regulations against current tourist projects would smash the potential creation of some 45,000 jobs and that the Junta's destructive plan 'isn't going to bring protection, nor any improvement for the coast' although it would add to 'legal uncertainty and higher unemployment'.
4.907,817 without a job
According to Eurostat, unemployment in Spain reached 26.2% in October. 0.4% more than in September and the highest in the 27 EU member states. Greece has an unemployment rate of 25.4%, Portugal 16.3.
And in November nemployment increased by 1.5% to almost to 5 million. Compared with November last year, its up 487,355, and now stands at 4.907.817, more than the total population of Norway.
No compensation for retired
Next year, the 8.9 million retired pensioners will not be compensated for the rise in inflation. The preliminary inflation figure for this year is only 2.9%, due to a fall in oil prices. Opposition and pensioners are protesting against the decision, since Prime Minister Rajoy one year ago promised pension values ‘would not be touched’.
Government taking region to court
The Government has decided to take the Basque Region to court for its decision to pay the ‘extra month’ cheque to its functionaries, which will be the 14th monthly payment this year. In July, to reduce deficits, the national government prohibited the regions making the extra payments. The Christmas payment to the Basque functionaries amounts to 207 million euros.
Other regions are planning to do the same.
SQUEEZING BLOOD FROM A STONE
The Superior Court of Justice has finally ruled Vera Town Hall must pay compensation to Helen and Len Prior.
Helen and Len Prior's house in Vera was demolished in 2008, despite having all the correct licences. In 2009 the highest court in Spain, the Constitutional Court, ruled the demolition of their home was illegal and the case was sent for retrial, albeit that the house had already been demolished. In 2010 the demolition order was re-instated. The court ruled that Vera Council had issued the licence knowing full well it bore no relation to legal activity, on land not designated for building. Vera Council tried to avoid responsibility, appealing the decision and blaming the Junta de Andalucía.
In November 2012, almost five years after the demolition, the Superior Court has finally decided, with no further appeals available, that Vera Council is responsible. Helen and Len Prior can now resume their compensation claim, which had previously been declared premature.
Helen and Len have already incurred legal fees of 150,000 euros. They lost their home and have suffered both physically and mentally for over four years, but have continued to fight on. If The Vera Council now say they have no money, how will Helen and Len ever be compensated ?
Building permits down 43.4%
The Colleges of Architects approved 35,310 projects for construction of dwellings in the 9 first months of the year, down 43.4% on the same period of the ‘bad’ last year. Permits to construct one-family houses fell 27.4%, and dwellings in blocks, 48.9%.
Your house is worth 65% less
The institute IESE and real estate agency Fotocasa have calculated resale dwellings in October were valued 65% less than in April 2007, when the price per m2 was 2.952 euros, it has now dropped to 1.926 euros.
The prices are averages across Spain. Falls are a little greater for dwellings on the coast.
Amnesty for tax cheats
Few tax cheats with fat bank accounts or other assets have made use of the amnesty offered by the Government, however, in the last days before the amnesty ended (last week) many people queued in banks with bags of cash. Filling out a form and open an account were the only requisites to whitewash the dirty money.
One kilo of gold in house of Diaz Ferran
Gerardo Diaz Ferran, who played an important role in Spanish economy and politics for several years, as president of the employers union and owner of the Marsans group, was arrested a few days ago for ‘whitewashing black money and hiding assets’ in connection with the bankruptcy of his company. The police found 150,000 euros in cash and 1 kilo of gold in his house.
In the houses of two of his partners police found 400,000 and 1 million euros respectively. They also seized several expensive cars, apartments in New York, Mexico, Portugal, Holland, and Mallorca, and stopped the sale of a 27-meter yacht.
Car registrations down 12.6%
In spite of a government plan to assist purchasers of new cars, registration have fallen 12.6% so far this year. In November, sales fell 20.3%, compared with the already very bad November last year. This is the lowest number of registrations since 1993.
Paradores closing
Seven of the 94 state owned ‘Paradores’ will be closed permanently and 27 ‘temporarily.’ 644 employees will lose their jobs, with maybe more than 900 to follow.
The ‘Paradores’ closing permanently are in Albacete, Manzanares, Ayamonte, Ferrol, Puerto Lumbreras, Teruel and Verin.
Judges protest against police torture
200 judges from across Spain have signed a petition denouncing the double pardons granted by the government to 4 Catalan police officers who were sentenced for torturing a Romanian citizen, who was arrested ‘in error.’ Last February the Government reduced the sentence to two years and permitted the condemned officers to re-enter the service. The officers were supposed to go to prison on 10th December, but in a new decision, the Government replaced the prison term with a fine.
65% of Italian olive oil is Spanish
The Italian newspaper La Stampa reported Italy accounts for 65% of olive oil exports from Spain. Tanker lorries collect bulk olive oil from depots and cooperatives, then package the product, maybe even blend it with other oils, and then re-exports it stamped “Produce of Italy”.
Milk sector in crisis
The Spanish milk sector is in crisis. Producers maintain the price they are paid does not cover production costs. Last week 11,000 dairy farmers in Galicia, 40% of Spain’s total, went on strike. The Government has promised to help, which will mean higher prices in the future.
Disabled demonstrate
Several thousand disabled people, from 60 organisations across Spain, demonstrated in the centre of Madrid against ‘the situation of absolute emergency’ in which they have been placed due to cuts in social assistance provided by the government.
Crisis of the week:
Shares in the government intervened Bankia bank dropped 25.3% on the IBEX stock exchange when plans for its restructuring were announced
Goldman Sachs predicts Spain will not come out of recession until at least 2015
The country risk fell 392 points following the European Commission’s approval of the government’s plan for restructuring Spanish banks
Industrial production in Spain is down 30% on 2007
Economist :
Bail-out tapas
Spain has taken painful steps to clean up its banks, but more may yet be needed
European Union regulators approved Spain's plans to restructure its troubled banks, allowing them to get bail-out funds. One of the lenders, Banco de Valencia, is being sold off for a token €1 ($1.30).
THE delightful (though small) plates of tapas that often accompany an evening drink in Spain can, if eaten with gusto, end up replacing the meal they were meant to precede. After four years of appetiser-sized bank restructurings, bail-outs and reforms, Spain’s banking system may finally be getting its fill of public money.
On November 28th the European Commission approved restructuring plans that will allow it to inject €37 billion ($48 billion) in euro-zone funding into four Spanish banks. The money will allow for a clean-up of bank balance sheets begrimed by dud loans granted to property developers during the inflation of Spain’s colossal property bubble. Many of these loans are now worth just cents on the euro. Yet an earlier refusal by supervisors and banks to recognise the scale of the problem contributed to an erosion of confidence in both banks and in government finances.
Under the new plan, four banks including Bankia, itself the failed product of an earlier half-hearted restructuring of bust regional savings banks, will get cash from two of Europe’s bail-out funds. In return they have promised to cut their balance-sheets, stop lending to risky property developers and focus instead on lending to small and medium-sized businesses.
The sharpest cuts will be at Bankia, which has already been nationalised and which will receive public funds worth almost €18 billion (including €4.5 billion injected into the bank by the state in September). It will cut its branch network by almost 40% and its staff by 28%. Investors in the bank’s debt will also take a hit, with as much as €4.8 billion in additional capital coming from the mandatory swapping of hybrid instruments and subordinated debt for new shares worth less. Across all four banks, holders of hybrid instruments may take a hit of about €10 billion.
Forcing investors in some of the banks’ debt to take losses was a condition imposed by contributors to the bail-out funds to minimise the burden on taxpayers. Yet it will probably prove unpopular in Madrid, since much of this debt is held by tens of thousands of small investors, many of whom bought it after being assured by banks that it was as safe as deposits.
Bankia optimistically hopes to return to profitability next year and to be generating healthy returns by 2015. One bank, Banco de Valencia, was deemed beyond salvation. It will be recapitalised with €4.5 billion and then sold to CaixaBank, Spain’s third-largest bank.
A second key element of the bail-out will be the creation of a new “bad bank” in December. It will take dud loans from those being restructured. The government hopes this will help them regain the confidence of markets. It may also kickstart lending, and help revive an economy that contracted by about 5% in the year to August. Little detail was provided as to exactly how much debt the bad bank, known as Sareb, will take, but officials in Brussels said some €45 billion in Spanish banking assets would be transferred to it.
Officials in Brussels hoped that the markets would welcome the restructuring, saying it would “restore the viability of banks”. Yet even this new recapitalisation and restructuring plan may underestimate the voracious appetite of the Spanish banking system.
A report by staff at the International Monetary Fund (IMF) released on November 28th sounded warnings of further loan losses as Spain’s economy contracts. Losses on corporate loans have already increased sharply, yet those on mortgages remain remarkably subdued (see chart). Some deterioration in these seems likely if, as the IMF expects, house prices contract and unemployment also rises.
The IMF reckons that house prices, which have slumped 30% from their peak, may fall further given the stock of unsold homes and weak growth in household incomes. Unemployment, already at about 25%, may rise to almost 27%, the OECD warned in a separate report this week. The main course of bank restructuring may have been served, but a sour postre (dessert) may still be on the menu.
Spain’s Bad Bank Seen as Too Big to Work: Mortgages
By Sharon Smyth
Spain’s bad bank will struggle to sell the 90 billion euros ($117 billion) of toxic property assets it takes from other lenders because of its size and inability to help buyers finance purchases.
“When managing tens of thousands of assets scattered across the whole of Spain, big is not beautiful, it’s sheer chaos,” said Mikel Echavarren, chairman of Irea, a Madrid-based financial adviser. A large, “clumsy” bad bank will be at a “tremendous” disadvantage and will generate losses that Spaniards will have to pay for.
Spain’s efforts to sell as much as 90 billion euros ($117 billion) of toxic property assets it uses to create a bad bank from lenders that take state aid will be constrained by the size and inability to provide credit to potential buyers, adding to the risk of taxpayer losses.
The country has until the end of next month to establish the institution, a condition for receiving 100 billion euros of external aid for the financial system it requested in June. Premier Mariano Rajoy’s government seeks to purge about 180 billion euros of bad assets that the Bank of Spain says are on the balance sheets of lenders. The government has said the bank will be profitable and won’t cost taxpayers.
The bad bank will not take deposits and so won’t be able to provide financing to potential buyers of its assets, Antonio Carrascosa, director general of the state run FROB bank-rescue fund, said in an Oct. 18 interview at a Barcelona conference.
The aim is to place soured real estate loans and other assets in the vehicle for as long as 15 years in the hope that, once cleansed of bad property bets, banks can resume lending and reactivate an economy mired in its second recession since 2009. The bad bank will have to compete with healthier lenders that have set up units to sell their own problem assets and can provide credit, known as vendor financing, to potential buyers.
Financing Agreements
“It won’t be a bank and the only way it may be able to achieve sales with attractive mortgages is by reaching financing agreements with other banks, which will be competing to deleverage their own real estate,” said Fernando Acuna Ruiz, managing partner of Taurus Iberica Asset Management in Madrid.
Acuna, whose company oversees 60,000 foreclosed properties on behalf of 25 banks, said that while the structuring will be in place by December, it will be “mammoth,” with tens of thousands of assets and loans to service and transfer onto its books. “Integrated management won’t be up and running for 12 to 24 months after,” he said.
Known by its Spanish acronym SAREB, it will have as much as 90 billion euros of assets based on their transfer price, initially comprising land, developer loans and residential units that went bad after Spain’s decade-long real estate boom turned to bust, an Economy Ministry official who spoke on condition of anonymity told reporters on Oct. 17.
Transfer Valuations
The Bank of Spain has yet to fix transfer valuations for the assets based on the stress tests of Spanish lenders carried out by management consultants Oliver Wyman and published on Sept. 28. The 90 billion-euro number is based on transfer prices, so the original value of the assets is likely to be higher.
In comparison, Ireland’s National Asset Management Agency, set up in 2009, spent 32 billion euros on mortgages with a face value of 74 billion euros to cleanse its banking system.
Lenders that take state aid will have to transfer to the bad bank foreclosed property of more than 100,000 euros, real estate and builder loans of more than 250,000 euros and controlling stakes in property firms, according to the Economy Ministry official. A decree to regulate the entity should be passed on Nov. 16. It may be amplified in the future to include loans to consumers, small- and medium-sized enterprises and retail mortgages.
‘Consume Capital’
“It will need a legion of lawyers, notaries and debt servicers to ensure properties and loans have no legal issues and change title documents,” Echavarren said by telephone. “By the time they find out what and where the assets are, they won’t have any idea of what they have and what to do with it for at least a year.”
The vehicle won’t have the resources to manage assets, which are like “livestock that consume capital,” he said. Holding the assets cost money in taxes, maintenance and security and will generate losses for Spaniards.
Spain is considering giving tax breaks to the bad bank, two people familiar with the matter said. They asked not to be named because the information isn’t public.
A lack of financing options will also hamper the bank, Echavarren said. “A bad bank can try to compete by slashing prices but as a buyer if you can’t get a loan, and the bad bank won’t be able to provide them, you can’t buy full stop.”
The FROB, which will be a shareholder in the bad bank, is searching for investors to take at least 51 percent of the vehicle, an onerous task, according to analysts including Krista Davies at Fitch Ratings.
Skeptical Investors
“Equity investors in the private sector are likely to be skeptical of the benefits to be drawn from investing in a wind- down vehicle,” Davies wrote in an Oct. 22 report. “As SAREB purchases will take place during a period of uncertainty around economic development in Spain, there is likely to be only a small number of potential private investors in SAREB.”
Jaime Guardiola, chief executive officer of Banco Sabadell SA, told reporters today in Madrid that more details about the bad bank are needed before it can decide on a possible role for the vehicle. Banco Santander SA (SAN) Chief Executive Officer Alfredo Saenz said he has concerns over the transfer price of assets, though they are based on incomplete information.
Concerns about Spain’s creditworthiness have grown since the government, which is struggling to trim a 2011 deficit that was more than three times the EU limit, requested as much as 100 billion euros in European Union aid in June to shore up its lenders and its economy contracted for a fifth quarter.
Ratings Reviews
On Oct. 17 Spain avoided joining euro-region peers Cyprus, Portugal, Ireland and Greece as being rated below investment grade by Moody’s Investors Service as it concluded a review for a possible further downgrade of Spain initiated in June. Standard & Poor’s lowered Spain’s ratings to BBB- on Oct.10.
According to Carrascosa, the bad bank “cannot make losses in the short, mid or long term.” As well as reaching accords with banks participating in the vehicle, the bad bank will need to reach agreements with other “healthy” financial institutions to arrange vendor financing, he said.
It also hasn’t ruled out selling homes individually.
“We can’t set up offices all over Spain because it’s too big so we’ll try to sell packages of assets to institutional investors and not individual apartments,” he said. “If we have to set up agreements with real estate agents, we could do it. Flexibility and profitability are the two key words.”
Santander’s Success
The bad bank’s limitations stand in contrast to Santander, Spain’s largest lender. The company advertises homes on its Altamira real estate website for as little as 40,000 euros in Madrid and apartments complete with swimming pool and garage on the coast of Moncofar in Valencia for 65,100 euros. The lender offers 40 year mortgages with loan to values of as much as 100 percent.
The strategy is paying off. Proceeds from sales of homes on its balance sheet reached 1.3 billion euros in the second quarter -- almost as much as the total for the whole of 2011, according to Saenz who said on July 26 that sales are taking place at discounts of as much as 45 percent. Santander has reduced its exposure to Spanish real estate to 26.5 billion euros from 42.5 billion euros in 2008, the bank said today in a results presentation.
Banco Bilbao Vizcaya Argentaria SA (BBVA), Spain’s second-largest lender, last year created BBVA Real Estate to handle its 30 billion euros of property assets.
‘Market Prices’
“Our policy is to sell at market prices with 100 percent financing,” Ignacio San Martin, head of research at BBVA Real Estate, said on Oct. 19. The bank is selling more houses than last year, though said that for large institutional investors, the bank prefers buyers to provide their own financing. “That way we don’t hold the loan on our books or have to provision them.”
Sabadell, a Catalan lender, sold 708 million euros of properties via its Solvia real estate unit in the first nine months of the year, up from 433 million a year earlier. The company is aiming for sales of 1.19 billion euros this year, according to an earnings presentation by the lender today.
The strategy works well for healthy banks, according to Fernando Rodriguez de Acuna Martinez, a partner at Acuna & Asociados, a real estate consulting firm in Madrid. If nationalized banks that transfer assets to the bad bank were forced to provide vendor financing for sales, it would perpetuate the subprime lending that initially got them into trouble.
“As a nationalized bank, you’d be looking at an asset that came to you via way of default, so do you really want to be forced to finance its sale again to get it out of the bad bank?” he said during a telephone interview.
Acuna said the best discounts are on the worst assets, where demand comes only from people with a low credit rating.
“So they are subprime or less than subprime borrowers and if you give them credit, you are assuming bad risk again. It’s a vicious circle as you are financing the very assets and debtors that got you in trouble in the first place.”
Eurozone crisis far from over, ECB, IMF warn
Daniel Flynn and Leigh Thomas, Reuters
PARIS — The eurozone’s crisis is far from over and its members must consolidate their budgets and forge a banking union to put the bloc on a more stable economic footing, the leaders of the IMF and European Central Bank said on Friday.
Underlining the bloc’s woes, data showed both German retail sales and French consumer spending falling faster than expected as well as stubborn Spanish inflation that will likely lift the cost of state pension rises for an already hard-pressed budget.
Eurozone wide numbers showed another 173,000 people joining record jobless queues in October, while a dive in consumer price inflation offered only limited relief to households struggling with the recession.
Speaking in Paris, where the government is trying to dispel concerns raised by the IMF that France could be left behind as Italy and Spain reform at a faster pace, ECB President Mario Draghi said the eurozone’s three-year-old crisis was likely to stretch deep into next year.
“We have not yet emerged from the crisis,” Draghi told Europe 1 radio. “The recovery for most of the euro zone will certainly begin in the second half of 2013.”
“It’s true that budgetary consolidation entails a short-term contraction of economic activity, but this budgetary consolidation is inevitable,” Draghi said, speaking through a translator.
A Greek bankruptcy could lead to the break-up of the eurozone
German lawmakers approved the latest bailout for Greece on Friday by a large majority despite growing unease about the cost to taxpayers less than a year before federal elections.
The package, which aims to cut the Greek debt load to 124 of national output by 2020, coincides with increased speculation among German lawmakers and media that eurozone governments will eventually have to write off much of the Greek debt they hold.
Finance Minister Wolfgang Schaeuble said in the Bundestag debate that such speculation could undermine the Greek government’s reform drive.
“If we say the debts will be written off (Greece’s) willingness to make savings is correspondingly weakened. Such false speculation does not solve the problems,” he said. “A Greek bankruptcy could lead to the break-up of the eurozone.”
ECB policymakers hold their regular monthly policy meeting next week and are widely expected to leave interest rates on hold at a record low of 0.75%. Economists are divided on whether the central bank will cut next year.
Draghi has stressed the ECB is ready to help tackle the crisis by buying potentially unlimited amounts of sovereign debt under its new bond-buy plan but until Spain applies for aid, a prerequisite for the ECB to intervene, it cannot use the tool.
Resisting fresh ECB action, Bundesbank chief Jens Weidmann said on Thursday central bankers had done more than enough to fight the crisis and it was now up to governments to act by reforming their economies and making the banking sector solid.
BANKING UNION
Draghi, in Paris for a conference with top financial officials, said eurozone governments should push ahead quickly with implementing a banking union which must apply to all banks to avoid fragmenting the sector.
His position puts the ECB, which would take on the role of pan-European banking sector, at odds with Germany. Berlin has said that unified banking supervision under the aegis of the ECB should apply only to the bloc’s largest banks.
Joerg Asmussen, one of the ECB’s key negotiators for a closer integration of the eurozone and a former deputy German finance minister, said late on Thursday a new European banking supervisory body would not be ready to operate fully before 2014.
But International Monetary Fund head Christine Lagarde pressed for swift implementation of a banking union that would have powers to supervise all banks in the eurozone.
“Banking union seems to us to be the first priority,” Lagarde said during the meeting with top financial officials in Paris, adding that closer budgetary consolidation should be the next priority.
The economic situation in the eurozone remained fragile and governments should maintain a “reasonable” pace of budgetary consolidation to avoid crimping growth, she added.
© Thomson Reuters 2012
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