Battle against the elements
![](/sites/default/files/noticias/img/2cabecera_professional_articles.jpg)
Non-performing loan transactions are a very real topical issue in Spain. 2016 left us with 18 large-scale sales of NPL portfolios made by Spanish banks and savings banks, worth €13 billion euros. It is estimated that in Spain alone NPLs to the tune of €120 billion in NPLs could be packaged into portfolios and sold in or after 2017. This is ten times higher than the figure the market could absorb in 201
It is no surprise that NPL transactions are a reality and that Spain, together with Italy, the UK, Ireland and Portugal, is one of the most active markets. The truly striking thing is the worldwide recognition being given to Spanish firms advising and leading these translations (financial institutions, the big four, corporate finance houses, real estate experts, servicers and legal firms). A small Spanish Armada of all of these recently set sail to the European Investment Summit held in Miami, having more success with the fleet’s arrival this time around. Unlike the original fleet of Spanish ships, their mission on this occasion was not to overthrow a Tudor monarch. Their sights were set rather on crowning our country once and for all as the most powerful and interesting market for investments in NPL or REO portfolios; a market in Spain with no shortage of sellers willing to offload these types of loans and real estate from their balance sheets en masse (the market was used by SAREB and Bankia, two of the main players in 2016). We must also mention the presence of the real estate industry, with specialists (such as JLL) who routinely calculate the returns for investors on NPL or REO portfolios often including products with intricate appraisal processes such as hotels in operation, shopping malls, administrative concessions or logistics centers. And completing this small Spanish Armada was a select group of servicers (Haya, Hipoges, Finsolutia), specialized in managing NPL or REO portfolios for investors, once they have acquired them from the seller banks, and the collection risk (together with a reasonable expectation of recovery) has been transferred to the investors. It was clear to those of us who took part in that unique landing that those US investors who are (and will increasingly be) choosing Spain to perform these transactions are going to find an extremely mature market in our country (and in neighboring Portugal), with infinitely higher levels of legal certainty than our neighbors (France or Italy) and a degree of certainty over returns on their investment that compares well with markets such as the UK or Ireland.
Despite all this, a concern circled above the travelers. The low level of activity in Spain in the first quarter of 2017 was a very different scenario to the frenetic end to 2016. This obviously could not be because Spanish banks and savings banks had offloaded all their NPLs or REOs when the NPL figure in Spain is higher than €120 billion. The explanation is much more straightforward. What has happened is Spanish banks and savings banks are still digesting the memorandum over a hundred pages in length that the European Central Bank published in the last quarter of 2016 containing the supervisor’s guidance on the management strategy for NPLs, with five cornerstones: forbearance, recognition, impairments, write-offs and collateral valuation. Digesting the document appears to have required further adjustments to the current strategy of Spanish banks and savings banks (sellers by nature of this type of products), even if it means placing investors in an impasse which, in any event, seems to be drawing to an end.
If one thing became clear from the exchange of impressions with some of the organizations also attending the event (the World Bank, for example) it was that when the wind next fills the sails of our own particular Armada, Spanish firms (legal firms very especially) have to continue rowing with our clients to increase their degree of legal comfort, and address the shortfalls associated with these transactions. Experience shows that many of the risks often faced by investors (lack of documents, lack of appropriately contextualized information, lack of updated statistics on timing and legal proceedings, shortfalls in the legal recovery strategy, etc.) may be reduced (or even disappear) if lawyers (especially those of us who routinely advise foreign investors) play a decisive part in the transaction, and our role moves away from the field of the commodity into reliability. It is the only way to battle against the elements and sail into harbor with all of our vessels.
Contact
![Juan Verdugo](/sites/default/files/styles/medium/public/team/photo/juan_verdugo_garcia_en_20240417.jpg?itok=GJ81NpPU)