Spanish Banks Asset Rich, Cash Poor

Spanish banks are turning into some of the biggest real estate companies in Spain, just as they did during the last property crash of the late 80s and early 90s.

To a greater or lesser extent, banks are running some of Spain’s biggest listed developers, companies like Colonial and Metrovacesa, who were forced to throw themselves at their bankers’ feet when they couldn’t cope with their billions of Euros of debt.

It’s not just the big developers with billions of Euros of debt that the banks are having to take over to prevent their loan default rates from going through the roof. All around Spain many small regional banks and savings banks have been quietly taking over small local developers for the same reason.

Having taken over developers or their assets in return for cancelling debts, many banks and savings banks, known as cajas, now find they own a wide variety of real estate assets from land and flats under construction to finished developments and business parks.

Knowing what to do with all their new real estate holdings is an increasing problem for Spain’s banks. Big banks like Santander have set up new divisions to manage property portfolios, which in Santander’s case is valued at more than 2 billion Euros.

But banks are not property companies, and on the whole do not do a good job of managing real estate assets. That said, the property crash of the early 90s turned out to be one of the most profitable episodes in the history of Spanish banking. Having got assets on the cheap, all the banks had to do was hold on until the market picked up, which it inevitably did.

The big question is, will it be the same again this time?

Story by Mark Stuckling