I would say that half the banking system is technically insolvent, mainly the cajas. But thanks to help from the Bank of Spain with looser accounting rules, and liquidity from the ECB, they limp on like Zombies. This can carry on for some time.
I’m helping investors looking at distressed debt opportunities so I’m taking a closer look at this issue than most.
The market price (if there is even a market for some of their assets) is way below loan values, but thanks to accounting regulations lenders do not have to recognise the full loss.
As a result, discounts for distressed mortgage debt are not yet interesting for investors. There are few deals being done.
This will change. They can’t hold out forever, and I don’t believe a recovery will come to their rescue like last time.
If/when a deal is done there will be some fantastic repos to be had. Properly interesting prices.
Absolutely on the money as usual Mark.
When you approach Spanish banks as I have done they will offer you two classes of property. Those which are in an NPA and those where repossession from individuals has been completed. It is the property in the latter category they are anxious to sell.
These properties have been reduced from their original selling price because the previous owner has taken the hit. The bank simply want to clear their mortgage liability. So you can effectively buy it for the money lent. That does not mean the property is worth that amount. On the contrary the selling price simply represents the mortgage valuation at the time of original purchase which could be up to around five years ago and around 60-80% of the selling price then..
The mass of property contained in NPA’s represents the property repoed from the developer. In most cases they have a builders mortgage anyway. In most cases the developers owe far more for golf course, infrastucture and land costs.
These properties in NPA’s are not reduced by very much from the original price. I personally have made offers on a number of such properties which is always declined. I did that because they are usually the best examples of property available which the developer could not sell before the crash.
The banks are not really interested in selling property contained in NPA’s. They want rid of the second generation repossessions first which are sitting on their visible asset base on balance sheets. At the moment they believe they can do that by offering crazy mortgage terms to young Spanish families who still have a job. I have suggested before that developments designed for leisure we end up residential and occupied by Spanish families. Nothing wrong with that.
Until the banks open the flood gates, put their hands up and admit mia culpa nothing will change. The problem is that’s the last thing the Spanish government and the ECB want right now. So they will likely continuing propping them up and covering their losses
They are hoping they can hold out until the upturn comes and will then be sitting pretty, able to sell off masses of property at silly money and recover their investments.
Let them dream on. 🙁