The latest Financial Stability Report from the Banco de Espana has revealed the extent to which banks in Spain are tied to "troubled" assets in the real estate sector.

According to the central bank, financial institutions have been linked to €176 billion (£151.5 billion) worth of exposure to the Spanish property market, constituting 52 per cent of total loans received by the country's developers.

The report cautioned that the continuing economic instability in the eurozone region, coupled with a weak economic performance in Spain itself, "might result in increases in bad debts on top of those already seen".


And...........the Banco de España can add to the €176 billion all the deposits that the Banks/Developers have received (stolen) from off-plan purchasers who were never provided with the legally required Bank Guarantees.  These deposits are totally unaccounted for, as on most occasions due to their negligent actions the Banks allowed the developers to withdraw the money and spend it as they like.

According to LEY 57/68 Article 1.2 the Banks 'under their responsibility' (bajo su responsibilidad) must issue or verify the existence of Bank Guarantees for all off-plan deposits they receive.

Therefore if Spanish Law is enforced and the judicial system acts in an efficient, effective and transparent way the Banks will ultimately be made to 'find' the missing deposits and refund the purchasers.

So in reality the €176 billion is only what is actually accounted for by way of authorised loans to developers and deposits that are bank guaranteed.  It does not include the deposits for which Bank Guarantees were not issued as nobody is currently 'accounting' for this money. 

Kind regards

Keith

keith

I would be very surprised if the figure quoted by the Bank of Spain did not include the liability in respect of deposits taken by the banks and guarantees not issued

if it did not it would mean that the Bank of Spain has burried it'd head in the sand which would be an extreemly risky position bearing in mind the recapitalisation of EU banks 

Banks always make projected provisions even though they may not actually have made a loss

The liability under the law must eventually fall on the Spanish banks but it will take time...as it did for for  banks in Uk who overcharged or sold  worthless insurance 

The Bank of Spain has been burying its head in the sand for the past 3 years!  In 2008 the Bank of Spain annual report stated:

 "There are obligations imposed by LEY 57/1968 on financial institutions - some banks have not acted with diligence"

The Bank of Spain has done nothing since that statement to enforce the obligations on the financial institutions whom it supervises.

After meeting twice this year with the Spanish Government I also feel that they are burying their heads in the sand and are not accepting the true scale of the Bank Guarantees issue.

Many purchasers off-plan deposits were held in normal current accounts, which is contrary to LEY 57/68.  The Banks did not treat these deposits in accordance with LEY 57/68 - instead they allowed the developers to withdraw the funds and then denied all responsibility for those funds.

In our case at Finca Parcs, CAM Bank is denying any responsibility for the deposit funds paid to it by our group.  They have allowed the developer to withdraw this money.  So if CAM is found to be ultimately responsible then that will be another 2 million Euros of losses they will have to account for.

So I do not think that the figure quoted by the Bank of Spain really does include the liability in respect of deposits taken by the Banks for which Bank Guarantees were not issued.  The Banks are not accounting for this money - because they believe it is not their responsibility.

Kind regards

Keith

How could the Bank  Of Spain account for deposits that guarantees were not given for ? Without any paperwork They would just look like money deposited , surely ?

Perhaps it's not required to examine the detail at an individual level of who had BG's (or didn't as the case may be)?

For the purpose of real estate exposure wouldn't they just obtain the overall figures involved,  by accumulating all the initial funding from offplan developments (since these would have been in the form of developer mortgages?) and deducing from those figures what was left outstanding against each development (developer mortgage) at this moment in time? 

Exactly right guslopez.

You are correct - due to their negligent actions most banks just treated the non-guaranteed deposits as regular/normal payments into the developers account, failed to secure the funds in a Cuenta Especial and then allowed the developer to use the money from the Cuenta Corriente as they wished.................

Maybe some developers used the money to put infrastructure in place, build some houses on other phases of the developments, pay off some of their developer mortgages or......to buy new cars, take nice holidays, invest in other business projects, withdraw in cash etc etc.  There was no control so who knows what happened to all the non-bank guaranteed money!  That is why I say that it is in a 'black hole' and totally unaccounted for.

Ads - yes the Bank of Spain have obtained their figures from the individual banks - the Banks have reported the total value of the real estate loans on which the developers have defaulted.  The non-bank guaranteed deposits are therefore not accounted for as a liability for the bank or the developer.

In fact some developers may have used some of the non-bank guaranteed money to reduce the amount of their outstanding loans to the bank - therefore the 176 Billion may also be artificially reduced as a result!

Keith

Hi, I just noticed María de Castro´s new entry on her blog in which she states that there are possibilities to recoup money from the banks if the developer / promoter disappeared, went bankrupt etc. It was a general statement about the situation on a national level and I´m not sure if she would like me to copy her blog entry here. Have a look at it as I think it adds to this discussion. My comment there was:

Hola María,

I read about this as well and it seemed like very good news to alll the people who fell victim to developers/promotors who went bankrupt or just disappeared.

However how would it work in reality. We have some clients who became victim of purchases with deposits who can´t get their money back as the bank warranty has never been given or it´s unclear. Or people who have claims against promotors who hide behind the fact that the banks have taken over their apartments or complete developments.

I got some promising information from another lawyer firm that it´s indeed possible to recoup some and I have scheduled a follow up meeting to see if it would be practically feasible, but I´m very interested in your take on how this would actually work.
-----
I suggested her to do a follow up and after doing so I noticed this topic. It seems from the lawyers I spoke with that there is some positive jurisdiction and we intend to put some real cases in the hands of the the law firm which we have contacted, but where would I look if I want some more practical information. I realize this topic is a very general one so maybe I need to put it somewhere else but it´s not just about deposits but all claims against developers. If there is a better topic just let me know.

Max!
 

Keith,

I would go so far as to suggest that Spanish Banks and the Spanish Government, by not ensuring existing Laws are consistently enforced in any reasonable timeframe, together with bank's failure to honour their obligations according to this law are profiting from a cloud of secrecy to harbour corrupt practices.

Reforms will lead to "lower house prices," minister promises

De Guindos announces raft of measures to shore up banking sector

EL PAÍS - ÍÑIGO DE BARRÓN / ÁLVARO ROMERO - Madrid - 02/02/2012

Economy Minister Luis de Guindos on Thursday announced details of financial reforms that seek to encourage bank tie-ups and "put homes on the market at reduced prices."

The move follows up on campaign promises by the Popular Party to shore up Spain's banking sector by going further with reforms initiated by the Socialists, which included mergers for savings banks. The conservative government has pledged to allay market fears over Spanish banks' exposure to the real estate bubble, which burst in 2008.

Lenders wishing to merge have four months to pitch their proposal to the executive, which will grant authorization after consulting with the Bank of Spain, said De Guindos. Tie-up operations should be completed by January 1 of next year.

The economy chief also said that the administration will pump more money into the bank bailout fund, known as FROB, to help lenders in need. It will do so by issuing new debt, although De Guindos denied that the reform will eat up public resources.

Lenders will also have to set aside an additional 50 billion euros over their existing provisions to cover for sketchy real estate assets on their books, a measure that De Guindos had already announced earlier.

The reforms, said De Guindos, will help banks overcome their problems accessing capital on the markets and get credit flowing again to struggling households and businesses.

According to his forecast, once the reform process is completed lenders will be able to cover for up to 80 percent of their losses on land investments, 75 percent of ongoing developments and 35 percent of finished housing.

The minister added that these measures will help ensure that risky property assets on lenders' books, which currently total around 170 billion euros, are valued at more realistic prices. Because of that, the reform will "put homes on the market at reduced prices."

 " Therefore if Spanish Law is enforced and the judicial system acts in an efficient, effective and transparent way..." hahahah!

"Lenders will also have to set aside an additional 50 billion euros over their existing provisions to cover for sketchy real estate assets on their books"

I'm confused by this. What do you understand from this statement, Keith? Will "sketchy real estate assets" be inclusive of monies that off plan purchasers have deposited into Banks, which according to Law 57/68 should have been protected in special Bank accounts in the event of developer breach of contract? 

These outstanding debts to off plan purchasers should be ring fenced into a fund to provide recompense according to Law 57/68 and should not be used for any other purpose, otherwise it will be perceived as theft on a grand scale by the Spanish Banks.

Hi Ads

I agree that funds should be set aside to cover off-plan deposits paid to Banks for which no Bank Guarantees exist.

An Ombudsman should be set up to manage this and to preside over cases where the buyer can prove that the deposit was paid to the developers bank account either directly or via their conveyancing Lawyer.

Courts should only hear the more complex cases.

However, I do not think that the additional 50 billion euros and 'sketchy real estate assets' mentioned in the article are in reference to the off-plan deposits that have been 'stolen' by the banks.

I just think that the new Spanish Goverment has realised that the original €176 billion figure of toxic real estate assets was an underestimate and that an additional €50 billion should be put aside.

Kind regards

Keith

Thanks Keith, but do you think that the Spanish Banks have made sufficient provision then for recompensing off-plan depositers?

Do you think they have any idea of how much monies are owed in this regard?

I doubt the Banks have made any provision for the off-plan deposits for which they did not issue BG's for.

That money is in a black hole and needs to be added to the €226 billion.

The Spanish Government, Banco de España and Banks are all in denial.

They do not want to accept that Banks have liabilites under LEY 57/68 - even though in 2008 the Bank of Spain admitted that Banks do have obligations under LEY 57/68!!

BUT..............the courts are finally passing some Judgments to show that the judicial system is finally upholding the rule of Law - LEY 57/1968.

Also......some Banks (BBVA, Caja Murcia) are also settling out of court after receiving a Lawsuit even where no Bank Guarantee was issued.

Kind regards

Keith

 Having followed this thread for a long time, isn't this an issue that could/should be taken to the Eurpoean Court of Justice? Surley the ECJ would give a definitive answer to this very important problem.

Mike

This message was last edited by ads on 15/02/2012.