Spanish savings banks may be hiding losses on home loans by taking non-performing mortgages out of securitized transactions, according to CreditSights Inc.
By carrying the bad loans on their own books the so-called cajas sidestep downgrades to their mortgage-backed securities, the independent bond research firm said in a report. The regional lenders helped fuel the nation’s real-estate bubble, which burst after the collapse of the U.S. subprime market.
CreditSights follows a sample of 143 Spanish residential mortgage-backed securities collateralized by 136 billion euros ($170 billion) of loans, with about 45 percent originated by cajas. While the savings banks give little information about the state of their loan books, investor reports on the performance of the securitized debt suggest asset quality is weaker than at commercial lenders, CreditSights said.
“Caja-originated mortgages are performing much worse than those extended by Spain’s commercial banks,” analysts David Watts, John Raymond and Hana Galetova wrote. By buying mortgages out of the pools “they could have been artificially reducing the level of bad loans in RMBS while simultaneously undermining the quality of the cajas’ own assets,” they wrote.
A comparison of loans originated by commercial banks and cajas shows that delinquencies in the savings banks’ mortgages have been higher than those of the commercial banks for at least four years, the report said. Falling incomes caused by government austerity packages “would no doubt precipitate further rises in delinquencies,” CreditSights said.
For the cajas, the proportion of mortgages more than 90 days delinquent or repossessed peaked at 4.2 percent in the third quarter of last year and is now 3.7 percent. The rate of serious delinquencies for commercial banks was 2.3 percent in the third quarter and has now “leveled off” at 2.6 percent, according to CreditSights.
“By buying the loans out of the mortgage pool, the cajas would be taking those weaker loans onto their own books,” according to CreditSights. “The current 3.7 percent serious delinquency rate may flatter the performance of the cajas mortgage books and underestimate their potential losses.”
Source: BusinessWeek.com