What Is SAREB?
The creation of a “bad bank” or asset management company was one of the conditions for the bailout of the Spanish financial system established in the Memorandum of Understanding on Financial-Sector Policy Conditionality dated 23 July 2012.
By the end of February 2013, SAREB – Sociedad de Gestión de Activos procedentes de la REestructuración Bancaria – completed its initial funding needs, and as of today, SAREB has raised a total EUR 4.8 billion of capital. The company is owned 55% by private investors and 45% by the FROB (a public restructuring entity created by the Spanish government in June 2009).
SAREB has already acquired from the Spanish banking sector a total of EUR 50.8 billion of problematic assets. These assets had a total gross book value of EUR 106.6 billion (i.e., the assets have been transferred with more than a 50% average discount) and include 107,000 REOs (parcels of real estate owned by the lender after foreclosure) and 90,600 NPLs (non- performing loans). Certain financial institutions may also end up being forced to contribute assets if they are not successful in completing their restructuring and recapitalisation plans. This could raise the value of NPLs and REOs acquired by SAREB from EUR 50 billion to EUR 90 billion (transfer price).
SAREB has recently approved the business plan for its 15-year life on the basis of the EUR 50.8 billion of assets already contributed. According to the business plan, during the first five years SAREB expects to dispose of almost half of its REOs portfolio.
Investing in SAREB’s Assets
Investors may acquire assets from SAREB either directly or through specific vehicles to be created, the so-called Bank Asset Funds (Fondos de Activos Bancarios, or “FABs”). FABs are a completely new investment vehicle under Spanish law, but they are much like the special purpose entities used in securitisations. So, just like in securitisation structures, an investor who is interested in acquiring a specific portfolio of NPLs from SAREB can do so by setting up an ad hoc FAB. The investor then acquires the securities issued by the FAB and thus indirectly the proceeds of the underlying portfolio.
A new Spanish regulation affords preferential treatment for the taxation of FABs and the income derived by foreign investors from their investment in these vehicles.
Investors also benefit indirectly from new tax provisions which are designed to ensure tax neutrality upon the transfer of real estate assets and loans to SAREB and upon the reorganization of the assets by SAREB for their direct sale to third parties or their assignment to FABs.