Friday, July 1

The Government has already prepared a legal change to nationalize Sareb

  • The modification will be approved in the coming weeks and will be the first step for the State to take 54.1% of the capital in the hands of private shareholders.

  • The Executive has refused to inject new aid to the company because it seeks with the operation to minimize the cost of the bad bank for the public coffers

After months of preparations, the government has already prepared a legal change that will allow the State to take control of the Sareb, the bad bank created in 2012 that received the toxic real estate assets of savings banks rescued in the previous crisis. The Executive plans to approve the modification in one of the Councils of Ministers of the next weeks, in principle before the end of the year or at the latest at the beginning of the next year, as confirmed by sources familiar with their plans to EL PERIÓDICO. It will be a first step to be completed “not much later” with the departure of the private shareholders and the nationalization of the company.

The measure is a consequence of the decision of last March Eurostat, the community statistical office, to oblige Spain to include the company within the public sector for accounting purposes, which raised the debt by 34,918.2 million and the deficit by 9,891 million. To try to avoid this outcome, Sareb was born in 2012 with a majority of private shareholders due to a legal imperative that is now going to be eliminated (54.1% of its titles are in the hands of companies, mainly banks, and 45.9% belong to the State). The main problem is that multimillion dollar losses accumulated by the firm since then (5,947 million until June) have volatilized their own resources, that is, the 4.8 billion of capital and subordinated debt that said owners contributed.

Despite having a bulging negative equity (-9,292 million in June) that would bankrupt another company, Sareb can continue to operate thanks to a legal change approved by the Government in March of last year. However, the company has yet to amortize 34,570.2 million of euros from the debt guaranteed by the state with which he paid to the rescued entities the real estate assets that they transferred to him. The fact that it no longer has its own resources with which to deal with this debt if it does not generate the necessary income to repay it explains why Eurostat forced it to consolidate its accounts with those of the State, since the State will have to pay said debt in case of that Sareb cannot.

That is also the reason that the Government completes its nationalization: if the State assumes all risk it is logical that he also wants all management To try to minimize cost of the company for the public coffers. And the risk is not small: in its last business plan until 2027, Sareb points out the “inability to generate sufficient cash flows throughout the period to fully repay the debt issued by the company. “Hence, the Executive also has on the table extend your settlement date beyond 2027 to try to avoid a rise in the bank bailout bill.

Different formulas

The first step is to modify, as the Government is going to do, the Royal Decree 1559/2012 which establishes that “in no case the public participation may be equal to or greater than fifty percent of the capital of the company. “Once that legal obstacle has been removed, the Executive shuffles various formulas to nationalize the company, such as buying directly for a Symbolic price the participation of private shareholders (of one euro, for example) or make a accordion operation (Reduce the capital to zero given its equity situation and make a subsequent capital increase at a symbolic price that the State would subscribe). What the Executive is very clear about is that will not inject new aid public to the company at this time, despite the fact that some of the parties involved in the process considered it appropriate.

The State, through FROB, in 2019 already considered lost the 2,192 million that it injected to Sareb, so that the nationalization will not cause additional red numbers by itself. For the private shareholders It is not a big problem to get out of the shareholding either, since a long time ago most of them gave up the 2.6 billion invested and they took the impact in your accounts. Of course, the 15 proprietary banks (All the relevant parties except BBVA, which rejected the request to participate from then Minister Luis de Guindos) want the Government to allow them maintain the rights to the lower future payment of taxes (deferred tax assets) generated by the provisions made to assume the loss of your investment.

With the current regulations, the banks would lose deductibility tax of said loss by have more than 5% of the capital. In fact, one of the possibilities that has been raised is that the State takes more than 95% of the capital at first and dilute private shareholders below that 5% threshold. After a year, these owners could already sell the capital of the Sareb that they still had and deduct the loss in the payment of taxes. Another option that banks advocate is change the law to be able to activate tax assets directly.

Original sin

At his birth, the Government of Rajoy assured that the Sareb it wouldn’t cost a euro to taxpayers and would have an average profitability of 14%. From the beginning it was shown that it was completely false. The main problem of the company is that it received the more than 200,000 assets that the rescued boxes transferred to a excessive price. Thus, it paid 50,781 million euros through the debt guaranteed by the State, with a surcharge with respect to its market value that the European Commission calculated at about 19 billion and considered public aid.

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This benefited the rescued entities, since it avoided making them an even bigger hole than they already had, but it hurt the bad bank, which for years could not sell its loans and properties at market prices to avoid suffering even greater losses, which it would have left without its own resources even faster. To this was added a financial derivative (‘swap’) that he contracted to protect himself from interest rate rises but which, when these collapsed, has cost him a few 3,350 million since its inception.

The consequence of all this is that the firm closed June with some handicaps of its assets of 8,812 million (71% have a market value lower than their book value), -61 million of equity and -9,292 million of equity. A situation that will not stop worsening: “It is estimated that the most of the portfolio produces a negative margin in its divestment “, admits its business plan.

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