Please Note That This Post Is Presently Being Updated On A Daily Basis As The Crisis Develops. The latest news is at the bottom.
Reuters are reporting
that the listed Spanish property company Martinsa Fadesa have been suspended from trading this morning following the request from the Spanish property firm last week for extra time from the banks to obtain additional credit in order to maintain its refinancing obligations. Martinsa Fadesa said on Friday it had asked creditor banks to waive a requirement that it obtain a 150 million euro ($235.7 million) loan - to make scheduled interest repayments - until August 7 after the deadline for obtaining it expired. (For fuller explanation on the background see this post of mine from yesterday
The company is scheduled to hold a board meeting at 14:30.
Shares fell 25 percent to 7.30 euros this morning before the Spanish stock exchange regulator suspended trading. On Friday, they fell almost 34 percent after the company said it had asked creditor banks to give it until Aug. 7 to obtain a loan the loan it needed as part of a refinancing agreement reached in May. In a regulatory filing, the company added that it had asked for the waiver because the deadline for obtaining the loan had expired.Update 1
According to the Spanish paper Expansion Martinsa-Fadesa creditors expect the Spanish developer to initiate bankruptcy proceedings later this week.
La Caja de Ahorros y Pensiones de Barcelona and Caja Madrid, Spain's two largest savings banks, are said to have lent more than 1 billion euros ($1.6 billion) each to Martinsa, while Banco Popular Espanol, Spain's third-biggest publicly traded bank, may have lent 400 million euros, again according to Expansion. Banco Popular's shares closed down 2.74 percent today.
One of the big areas of interest about the Martinsa portfolio is the quantity of land it contains. At the end of March 2008, Martinsa Fadesa had land totalling 28.67 million square metres, 41 percent of which is outside Spain. They also have a stock of more than 173,000 newly-built and unsold properties. Their net assets were worth 1.693 billion. In the first quarter, the company made net losses of 85 million euros and an EBITDA (earnings before interest, tax, depreciation and amortisation) loss of 85. Further, more than 40 percent of Martinsa Fadesa's land in Spain is not zoned, which means it could have problems getting building authorisation, particularly as the government tightens development rules.Update 2 - Tuesday 15 July 2008
Well, it's happened. History is now in the making. Martinsa-Fadesa SA yesterday became the first publicly traded Spanish developer to seek protection from creditors following the closing of the wholesale money markets to Spanish banks in the wake of last August's sub-prime crisis in the United States. Martinsa sought bankruptcy protection after failing to secure a loan that banks had demanded from them as part of a debt refinancing process. Martinsa has a current market value of 680 million euros ($1.1 billion), less than half of the peak reached in March 2007.
Sixty-five developers and real-estate brokers based in Spain have now sought bankruptcy protection this year, according to Credito y Caucion, a Spanish credit insurer.
So now it is simply a question of waiting and see who is going to be next. This is very frustrating, sitting here and watch the government sitting back with virtually folded arms, as if we were attending a typical European Cup final play off, just waiting to see when the Spanish team get sent home. There is lot's that could be done. This is all such a pity.
In very active trading on the Spanish Bolsa this morning Banco Popular and the country's leading real estate shares opened down over 6 percent as the market weighed news of Martinsa Fadesa's bankruptcy. This is already one of the largest and most significant corporate failures in Spain's history.
Property firms Colonial and Renta also opened down more than 6 percent. Popular, a major creditor to Martinsa - Expansion suggested yesterday that they were into Martinsa for 400 million euros, but they are much more vulnerable (and possibly generally exposed) than the larger La Caixa and Caja de Madrid - suffered the heaviest fall of any Spanish blue-chip stock.
At 2:12 Banco Popular shares had fallen 56 cents, or 7.9 percent on the day, at 6.54 euros, thus extending their loss so far this year to 44 percent.
Update 3 - Wednesday 16 July 2008
Well, El Economista is reporting that Spanish Prime Minister Jose Luis Rodriguez
Zapatero actually went back on a promise to provide loans to Martinsa, effectively forcing the company to seek protection from its creditors. According to the paper Zapatero promised Martinsa Chairman Fernando Martin he would provide the company with a 150 million-euro ($239 million) loan from the Official Credit Institute at a meeting in his official Madrid residence - La Montcloa - last December.
This is fascinating. Who really knows if ZP did make any such promise, or if this is simply the Spanish rumour mill hard at work - although presumeably ZP did meet with Martin - but either way a lot of scandal is surely now about to be served (incidentally there is now quite a lot of opinion and observation in comments if you are interested).
Also Martinsa-Fadesa SA formally asked a court for protection from creditors late last night, in the largest bankruptcy filing yet among traded property companies in Spain. The company said in a securities filing dated July 15 that it delivered the request to the Mercantile Court of La Coruna, in northwestern Spain, where the real estate company is based.
According to Reuters writer Elena Moya
, the demise of Martinsa is a sign hedge funds are pushing hard to profit from the plight of ailing companies and this may lead the insolvency proces in Spain to speed up.
Hedge funds bought Martinsa Fadesa debt at discounts of as much as 50 percent of its value, and may now profit from the forthcoming administration process, since the expected sale of assets in the longer term may pay them back at a price closer to face value. The problem is that the Spanish banks and builders simply don't now have the liquidity to sit back and wait in this way.
Basically this is modern globalised capitalism, and there is no need for such funds to care whether or not a company goes bust, and this may teach many Spanish companies - used to cosy long-term relationships with regional savings banks such as La Caixa, and Caja Madrid - a very painful lesson in modern global finance. Essentially the process doesn't come in parts. You can't have the parts you like, and then reject the bits you don't like. No one was complaining when these people were buying cedulas, well now.....
Moya quotes Mark Fennessy as follows:
"There will be more of these companies. Spain is completely unprepared for what's going to hit them," said Mark Fennessy, a restructuring partner at Orrick, a London law firm. "There are a number of funds, large private equity funds, that are already in discussions with Spanish banks to take out their debt and equity positions in distressed companies. We will see an increase in this activity."
I completely agree, the whole deabte here is way behind the curve. Basically such funds tend to be patient investors who sit back and wait for months (or years) before acting - and they are now reputedly eyeing Spanish companies such as retailer Cortefiel, or natural stone producer Levantina, who are both rumoured to be suffering as Spain's economy crumbles. (Claus Vistesen had a useful summary of the debate about the so called "vulture funds" - more correctly termed distressed hedge funds on his Alpha Sources blog
earlier last year).
Spanish banks had been trying to exclude foreign banks and investors in distressed companies from the restructuring agreements, in an attempt to prevent them influencing debt deals, however with the position deteriorating rapidly this is no longer realistic. Property companies such as Detinsa and Diursa did recently manage to reach debt restructuring agreements without international banks, but it will now be hard to keep international investors out, especially after the collapse of Martinsa Fadesa has increased the profile of opportunities in Spain.
Indeed, earlier this year, Martinsa Fadesa itself had to battle hedge funds in London as it needed a unanimous creditor agreement to approve its 4 billion euro refinancing. Using their deal-blocking power, some hedge funds managed to win repayment deals within one year, while some Spanish banks had to wait as much as seven years.
Perhaps the most ominous quote of the day comes from this (anonymous distressed hedge fund manager):
"Before, prices discounted the fact that the biggest companies wouldn't go bust, now maybe there will be a change, maybe now people will see the seriousness of the matter and will start working with more realistic expectations,"
On a not altogether related front, we learn today that Spanish car sales fell even further through the floor in June. Car sales fell 31 percent (year on year), compared with only a 14 percent decline for January-May. New car registrations for the whole of Europe were down 7.9% year on year, falling to 1,427,008 units from 1,549,574 in June 2007, according to data from the Brussels-based European Automobile Manufacturers Association. European sales for the first half of the year slid 2.2 percent, accelerating the 0.7 percent contraction recorded in the first five months.
So car sales are falling everywhere, but Spanish car sales are falling by a considerable order of magnitude above the rest, and the problem is accelerating rapidly, as financial jitters send builders out of business, and the combination of these two sends the real economy swiftly down, which of course only adds to the problems in the financial sector, etc, etc, etc......
Meanwhile Spanish Economy Minister Pedro Solbes in an interview on PuntoRadio today that the financial trouble of property group Martinsa Fadesa is an isolated case and not a sign of systematic failure. He also said the government would not bail out Martinsa Fadesa.
``We always said to Martinsa that we would help in whatever way we could,'' Solbes said in an interview on Punto Radio. Still ``the Official Credit Institute's credit lines aren't for working capital or real estate investment'' so ``we couldn't agree that there were projects that would allow us to offer'' financing.
Solbes also confirmed that Spain's economic growth will be "close to zero in some quarters" this year. Economic growth slowed to 0.3 percent in the first quarter, less than half the 0.8 percent rate of the previous three months and the government has predicted the expansion will cool further this year. When asked "Could growth turn negative?" Solbes replied "It's not my feeling at the Moment".
However the daily El Pais reported today that 12,500 families have begun paying for homes that were still under construction in Spain, Portugal, France, Morocco and eastern Europe, and Solbes also said that the government had an interest in guaranteeing that the company preserved the maximum amount of jobs - 234 people are apparently already about to lose their jobs - and that houses under construction were finished, so it is not quite clear at this point how all the circles are going to be squared here.
'It is true that other countries have acted to help companies, but it's normally when the problems are systemic and could filter through to other sectors...but this has nothing to do with the Spanish case, which is isolated,'
I really fail to see how he can say that this is an isolated case and keep a straight face. Maybe the magnitude of the land portfolio made Martinsa a bit special, but the issue is going to be far from an isolated one.
However he did admit that Spain's economy is going through an exceptionally complex economic crisis, this is the firts time, I think, that he has spoken so frankly.
'For me, this is ... the most complex crisis we've ever seen due to the number of factors at play,'
Would sombody kindly like to do something to try and extinguish the fire! (see comments)Update 4 Thursday 17 July 2008
Prime Minister Jose Luis Rodriguez Zapatero has denied Martinsa loans he had promised the company before Spain's March 9 election when he wanted to prop up the company to avoid damaging consumer confidence, according to the newspaper El Economista.
Reuter's Elena Moya is now reporting
that Martinsa Fadesa may not need to sell assets during its administration process if a new debt refinancing agreement is reached with creditors, citing "a source involved in the situation".
Moya says that "under Spanish administration law, a deal now
needs only 50 percent consensus to be reached, facilitating an agreement amongst creditors". It's the now in this phrase which attracts my attention. Does this mean that the law has recently been changed, since this clearly wasn't the position before, or they wouldn't have gone bust so quickly. Or is this just rumourology to "buy time"?
According to Moya:
The international banks and hedge funds that imposed tough conditions on the company's failed restructuring agreement will now be left out -as the board will only need 50 percent approval on any deal- making a solution more likely, the source said.
But this takes us back to the hedge funds as the source of the problem - the so-called "vulture fund" thesis - and while they are part of the picture, they are not the main part, so something still has to be faced up to somewhere, someday. And protecected as unlisted savings banks like La Caixa and Caja Madrid are, there are limits to their potential "generosity".
Meantime Spanish real estate company Renta Corporacion said today it had booked net losses of between 25 and 27 million euros ($42.8 million) for the first half of the 2008 financial year. Sales were between 173 and 176 million euros, the firm said, without giving a comparative figure for the same period last year.Friday 18 July 2008
Not too much on the general bankruptcies front today. The only vaguely related topic is the news that Banco Popular after coming back from last Tuesday's low of 6.54 retreated again for the first time in three days today, declining by 10 cents, or 1.5 percent, to 6.80 euros.
Spanish loan defaults climbed by 3 billion euros in May, according to data from Spain's central bank. Defaulted loans climbed to 27.76 billion euros from 24.75 billion euros in April and 12.05 billion euros a year ago. Loan defaults as a proportion of total loans reached 1.53 percent from 1.37 percent in April and 0.77 percent a year ago, according to the Bank of Spain data.
Spain's stock of mortgage loans rose an annualized 10 percent in May, the slowest growth rate in at least 15 years. Mortgage growth in May halved from 20.5 percent a year earlier, the Spanish mortgage association said today. That is the slowest growth rate since at least 1993, when the association began recording the data. Growth in Spain's stock of mortgages may slow to the 6 percent to 9 percent range this year from 14.9 percent in 2007, the association said. Mortgage defaults are now at about 1.1 percent of home loans and may rise to 2 percent by year-end.
Spanish construction sector output fell by 10.8% in May compared to May last year, according to the EU statistics office Eurostat. This was the biggest fall in the EU, and came after a 19% drop in April, when Spain also lead EU countries with construction sectors in retreat.
On a monthly basis, however, Spanish construction activity actually rose in May, with output 2.9% higher than in April. This is the first time since December that Spanish construction activity has risen from one month to the next, and was the second biggest monthly rise in the EU, behind only the UK (+3.4%). However, we need to remember that building is one thing and selling another (see mortgage data above), that Spain has to complete a record number of house and flats this year, and that the government is also increasing spending on civil engineering works which also figure in the data.
On another front altogether Promotora de Informaciones SA, aka as PRISA, and which is Spain's largest publicly traded media company, extended the maturity on 1.95 billion euros ($3.1 billion) of loans used to fund its increased stake in pay TV operator Sogecable SA on Friday.
Prisa extended the debt's maturity to March 2009, the company said in a regulatory filing today. Prisa owes about 5 billion euros after borrowing last year to buy the 48 percent of the Spanish TV company it didn't already own. The publisher of Spain's El Pais daily newspaper will raise another 500 million euros in the capital markets to reduce debt, the regulatory filing said, without providing details. Banks that supplied other loans to Prisa approved the extension, according to the filing. Looks like some people are struggling to find cash.
Update 6 Monday 21 July 2008
Well as noted at the end of last week, Prisa have been looking for cash, news today may help us understand why. Gestevision Telecinco SA and Antena 3 de Television SA, Spain's largest broadcasters, may well have to cut their dividends as a slowdown in advertising growth erodes earnings. Telecinco, who have raised their dividend for the past three years, have alreadt lost 48 percent in Madrid trading this year. The television company reports earnings on July 31. Antena 3, which has paid annual dividends since 2005 and is down 43 percent this year, posts results the same day. Both broadcasters will say profit declined, according to analysts' estimates.
Spain's 2008 ad revenue is forecast to grow at about half of last year's pace, if they are lucky. The slowdown in ad revenue has prompted Morgan Stanley to cut its profit estimates on the broadcasters for 2008 through 2010. As Spanish economic growth falters, the companies' outlook is worse than their European peers, and this is giving us another clear sugn how what started out as a problem with cedulas hipotecarias in the wholesale money markets is now ripping its way through the entire Spanish economy.
Shares of Fomento de Construcciones y Contratas SA, Spain's third-biggest construction company, are falling this morning, and were down as much as 4.4 percent in Madrid trading following a decision by Morgan Stanley to cut its price target, citing Spain's building slowdown.
FCC dropped as much as 1.62 euros to 35.29 euros and traded at 35.70 euros as of 10:32 a.m., giving the Barcelona-based company a market value of 4.66 billion euros ($7.4 billion).
Also Spanish construction company ACS is going to put its 45 percent stake in electricity group Union Fenosa on sale this week and hopes to close the deal by mid-September. Media had previously reported that ACS was going auction its stake in Spain's third largest utility - worth about 2 billion euros at current market prices - today, and wanted to close the deal by August. So everyone is having a hard time finding cash at the moment.
ACS says it is selling becuase it wants to "consolidate" its position in rival utility Iberdrola where it owns 7.2 percent directly and a further 5.2 percent via equity swaps, but some of the cash raised could well go towards cutting its net debt, which stood at 16.6 billion euros at the end of 2007. Iberdrola's gearing at that point was 66.4 percent.Update 7: Tuesday 22 July 2008
Well today it is the turn of the telephone companies. Basically we are in the period of company reports and outlook, and it is clear that the deteriorating real economy is going to affect virtually everyone. Telefonica fell the most in six months in Madrid trading after Vodafone's quarterly sales in Spain declined. Telefonica declined as much as 6.8 percent to 16.10 euros and traded at 16.22 euros as of 9:23 a.m. in the Spanish capital. Before today, the shares were down 22 percent this year. Vodafone, the world's largest mobile-phone company, posted a 2.5 percent service revenue drop in Spain in the three months through June. Spain was ``impacted by a decline in customer spending in a challenging macro economic and competitive environment,'' Vodafone said today in a statement.
Spain's benchmark stock index, the IBEX 35, fell 0.53 percent at 9:05 a.m.
Acciona: Enel will be forced to pay a premium should it wish to buy Spanish builder Acciona out of their partnership in power company Endesa, according to El Economista. Acciona shares retreated 60 cents, or 0.4 percent, to 141.05 euros on the news.
Fomento de Construcciones y Contratas SA (FCC SM): Merrill Lynch & Co. cut its recommendation for Spain's third-largest builder to ``underperform'' from ``neutral.'' The shares declined 41 cents, or 1.1 percent, to 36.50 euros.
Meanwhile cash-strapped savings bank Caja de Ahorros del Mediterraneo (CAM) yesterday set a final price for retail investors of 5.84 euros per share for a planned July 23 placement on the stock market, the first of its kind by a government-controlled savings bank. CAM had set 5.95 euros as the maximum price of the listing on July 15, but the final figure was at the bottom of its initial price range of 5.84-7.30 euros. CAM plans to allot retail investors 65 percent of 50 million "participation certificates" - similar to non-voting shares - on offer. The Alicante-based bank aims to raise up to 365 million euros ($582.3 million) by floating 7.5 percent of its "available surplus". We will see what happens on Wednesday.
Also the Spanish press has revealed that Fernando Martin, president of Martinsa-Fadesa, the company that left 12,500 clients with no home to show for their money, and hundreds of staff laid off, took 85 million Euros in cash out of the company last year in the form of dividends. That is more than the 70.4 million Euros paid in salaries to all Martinsa-Fadesa staff.
It has also emerged that Martinsa-Fadesa’s board of directors was paid a total of 6.8 million Euros last year, an average of 614,000 Euros per director. Despite running the company into bankruptcy, Martinsa-Fadesa’s board was paid more than larger builders like FCC, which is still in business.
The Spanish press reports that owners and managers of Spanish property developers are worried that Martinsa-Fadesa’s bankruptcy could set off a domino effect that engulfs the sector. Various sources in the Spanish property business have told the press that more bankruptcies are now inevitable.
Sources in the Spanish property sector warn that many more developers are experiencing liquidity problems. “Many other companies should be seeking voluntary protection from their creditors, but they aren’t doing so for image reasons,” Angel Serrano, director of the real estate consultancy Aguirre Newman, told the Spanish daily ‘El Pais’. “When they finally do so it might be too late.”
Martinsa-Fadesa’s bankruptcy has been front page news in the international business press, helping to reinforce negative investor sentiment towards Spain. “The principal repercussion is the damage done to the image of Spanish real estate sector in the eyes of national and international clients,” Serrano told ‘El Pais’.
With the Spanish banking system heavily dependent on foreign capital for liquidity, Martinsa-Fadesa’s bankruptcy will make it even more difficult for other Spanish developers to get credit, making further bankruptcies even more likely.
Now that Martinsa-Fadesa has gone into voluntary administration, investor attention has turned to Reyal Urbis, a quoted Spanish developer whose 6 billion Euros of debt makes it even more leveraged than Martinsa-Fadesa. Reyal Urbis chalked up first-quarter losses of 52.7 million euros ($81.9 million), which had quadrupled from 13.7 million a year earlier. Total Q1 revenue fell to 187.4 million euros from 314.5 million, with property development sales down to 129.5 million euros from 243.3 million a year earlier.
Both Colonial and Reyal Urbis, warned the CNMV stock market regulatory body last week that they have still not managed to refinance their substantial debt.
The Valencian developer Obradis was also forced at the weekend to seek protection from its creditors. With 5 developments partly sold and under construction, including its Balco de la Vila building in the popular resort town of Javea, Obradis has run out of the cash it needs to finish the projects and pay its debts. Obradis borrowed more than 50 million Euros in 2006 when credit was plentiful and cheap and had sales totalling 13.7 million euros in 2007. This is evidently pretty small beer compared with what is going on generally, but it is indicative of what is going to increasingly happen among the smaller developers.Update 8: 23 July 2008
Not a lot of really "fresh" news today.
Sacyr Vallehermoso - Spain's fifth-biggest builder - has said it has extended by one year a 560 million-euro ($884 million) loan used to buy its stake in Europistas Concesionaria Espanola SA. Their shares declined 10 cents, or 0.7 percent, to 14.24 euros. Everyone is absolutely strapped for cash now.
El Confidencial is reporting that Sacyr has also put its services division Valoriza on sale to raise cash. Shares declined 10 cents, or 0.7 percent, yesterday to 14.24 euros.
Exceltur, a lobby group for Spanish tourism companies, has halved its estimate for growth in the industry as the economy slumps, according to El Pais. Exceltur now predicts the industry will grow 0.8 percent this year, down from its previous prediction of 1.6 percent growth.
Banco Santander: Sovereign Bancorp Inc., the U.S. lender in which the Spanish bank owns a 24 percent stake, is scheduled to release its quarterly earnings today. Santander shares declined 12 cents, or 1 percent, to 11.58 euros yesterday.
Caja de Ahorros del Mediterraneo (CAM SM): Shares of the Spanish lender are due to begin trading at midday today on the Madrid exchange.
ABC is reporting that as many as five groups that may be interested in buying Actividades de Construccion y Servicios's 45 percent stake in Fenosa, and that they will receive sale documents on July 28. The shares were up 31 cents, or 2.2 percent, to 14.16 euros. ACS also need to raise cash. First you sell the household silverware and crockery.....
Housing Minister Beatriz Corredor announced a small plan to buy some land from the builders today. The Spanish government is planning to buy some 300 million euros ($478 million) worth of land for state-subsidised housing over four years. At the same time she insisted the move was not to bail out ailing construction firms, although it obviously is. She said the government needed extra land to meet its promise to increase production of state-subsidised homes to 150,000 a year from 100,000. The government will start a search for land to buy in October, asking companies to present plots for sale.
A few things are obvious here and needs saying. In the first place this is quite a small quantity compared to the size of the problem, and it is an attempt to do what badly needs to be done, but by the back door. The fact the plan isn't going to be put into effect until October also suggests they are in no hurry, and hence have no real idea of the magnitude of the problem they are actually facing.
Also, why build more homes? If the government want 150,000 to 200,000 flats, why not simply buy them at bargain basement prices to try and help clear the huge backlog of unsold housing.
I am in favour of buying back land, but with a large "haircut" to the present owners, and only under condition that this land is reclassified and not used for future building. If you don't do this you are simply never going to clear the market given the long term downward adjustment in the number of houses which are going to be needed in Spain, given that people are now not likely to be buying them for investment purposes in any way which is remotely comparable to the quantities which were built 2000-2008.Update 9: Thursday 24 July 2008
Well today Banco Popular is back in the news again. Banco Popular Espanol is Spain's third-biggest listed bank, and today they reported that second quarter profits rose less than analysts estimated as asset sales offset higher loan defaults.
Popular fell as much as 5.4 percent in Madrid trading after reporting net income increased 8.3 percent to 352.2 million euros ($552.5 million) from 325.3 million euros a year earlier. That missed five analysts' 392 million-euro median estimate. Popular may need to raise capital in the not too distant future should loan losses continue to mount. Popular fell 35 cents, or 4.4 percent, to 7.60 euros at 9:30 a.m. in Madrid, which was the most since July 15 and which puts this year's decline to 35 percent after the shares had recovered somewhat in recent days.
In May, the bank reported provisions of 39.3 million euros to cover loans to Inmobiliaria Colonial SA. On July 15, Popular said it set aside 100 million euros to cover loans to Martinsa-Fadesa SA, Spain's first traded developer to seek bankruptcy protection. Popular made 332 million euros in provisions in the quarter. It used gains of 200 million euros from the sale of real estate to cover part of the loan-loss provisions. Popular also booked 40 million euros in gains from the sale of its French banking unit.
Popular reported core capital, a measure of the underlying solvency backing its business, of 6.67 percent in June and said core capital could reach 7 percent by the end of 2008. The bank reported loan losses as a proportion of total loans of 1.42 percent, up from 0.98 percent in March and 0.72 percent a year ago.
The ratio of provisions to defaults has now plunged to 139 percent from 185 percent in March and 256 percent a year ago as new defaults surged 1.15 billion euros from 359.2 million euros a year ago. Losses from impairment of assets climbed 325 percent to 343.6 million euros from 80.8 million euros a year ago. Lending growth slowed to 8.1 percent from 11.7 percent in March and 16.7 percent in the same period last year. Client funds Net interest income rose 8.8 percent to 630.97 million euros.Update 10: Monday 28 July 2008
Banco Bilbao Vizcaya Argentaria (BBVA), Spain's second-biggest bank, said quarterly profit declined in the second quarter of 2008 by a more-than-estimated 19 percent as loan defaults surged and it set aside money for early retirements.
Net income dropped to 1.16 billion euros ($1.82 billion) in the second quarter ended June 30 from 1.42 billion euros a year earlier. Profit missed targets as BBVA booked a 329 million-euro charge for early retirements.
BBVA is facing simultaneous slowdowns in the bank's three largest markets, Spain, Mexico and the U.S., which together account for more than 80 percent of profit. While BBVA avoided subprime mortgage assets, the U.S. economy started to deteriorate after it bought Compass Bancshares Inc. for $9.1 billion last year. Loan defaults in Spain and Portugal rose to 1.22 percent in June from 0.64 percent a year ago.
BBVA's loan growth in Iberia (ie Spain and Portugal) fell by half to 7 percent in the first six months of 2008. The increase in Mexico declined to 15 percent in constant currency terms from 26 percent a year ago, when Mexico and the U.S. reported as a single division.
Worldwide defaults at BBVA climbed to 1.15 percent of total loans from 0.99 percent in March and 0.86 percent a year ago. Consolidated losses from impairment of assets rose to 618 million euros in the quarter from 509 million euros a year ago.
And this piece is very interesting. Spanish bank Banesto announced on Friday it had set up a joint venture with Spain's third largest property firm Reyal Urbis to help it sell unsold property. A spokesman for the bank declined to confirm or deny a report by El Confidencial on Friday which said Banesto had bought assets worth 400 million euros from Reyal Urbis in the last few weeks to boost the firm financially. The spokesman only confirmed that Banesto had created the company Promodomus "to try to make the promotion of Reyal Urbis assets more efficient".
Promodomus is 51-percent controlled by Banesto and 49-percent controlled by Reyal Urbis. Banesto formerly owned a stake of slightly more than 50 percent of Inmobiliarius Urbis, but sold it in 2006 before the firm merged with Construcciones Reyal.
Meanwhile we learn that Martinsa-Fadesahas won a reprieve from its creditors (ie it will not go into bankruptcy, for the time being) after a judge in La Coruña accepted the company’s request for voluntary administration. However a recent article in the Spanish daily ‘El Pais’ reports that Martinsa-Fadesa sold properties without building licences, and failed to provide some buyers with bank guarantees to cover their stage payments, which is against the law. This may be illegal, but it is the buyers who will do all the suffering: They may be looking at big potential financial losses, whilst Martinsa-Fadesa only has to worry about a slap on the wrist for an ‘administrative infraction’.
“Voluntary administration helps companies in distress, but does nothing to protect the interests of citizens,” the notary José Ignacio Navas Olóriz told ‘El Pais’.