Driving along an elevated stretch of the A-7 toll way that runs between Malaga and Algeciras in Spain’s southern Costa del Sol, one does not have to look hard to find evidence of the country’s financial burden. Built up and across the hillsides that rise sharply from the coastline, communities of summer and retirement homes sit empty, waiting for promised buyers who have long since lost their ability to keep up with payments. If complete, many properties lack the basic amenities promised by developers before the wave of bankruptcies left the coast’s real estate market gasping for air under the weight of oversupply and a sharp drop in demand brought on by the country and continent’s broader economic slowdown. Now left empty or occupied far below capacity, these properties have become not only a glaring reminder of the region’s rush to cash in on the explosion of profit and development of the early 2000s, but also a paralyzing force on the country’s banks, now weighed down by toxic assets and real estate prices that show little sign of rebounding in the near future. This latter pressure is made all the worse as Spanish banks’ books have become the focal point for both foreign investors and EU analysts wary of the country’s immediate fiscal stability and ability to withstand the stress of the coming year. According to a recent Wall Street Journal report, these empty properties could number as high as 1.5 million in a marketplace that is near stagnate. Still, combined with the countless other toxic assets crowding the books of La Caixa and Banco Santander could prove to be a boon for some investors.
Desperate to clear their books before stricter EU monitoring rules come into play or the force of anxiety about Southern Europe becomes too much to bare, banks across Europe are moving to unload assets at reduced rates, creating a buyer’s market for US and UK investors. “European financial institutions will unload up to $3 trillion in assets over the next 18 months,” according to a New York Times report released in the final week of 2011, adding that many will be let go at reduced costs either because they are seeking out ways to reduce their balance sheets or are under strict orders to do so by increasingly impatient EU regulators.
In addition to seeking a renewed level of confidence from foreign investors, the book clearing is also part of an effort to meet a “June deadline imposed by the European Banking Authority to raise more than 114 billion euros in fresh capital.” For many, the clock is ticking.
For local banks, the impact of off-loading their assets means more cash on hand and less dead weight to scare off investors and a restructured EU treaty that could mean far greater oversight in the coming months. For investors, the offerings mean a chance to snatch up properties and stakes in European firms at cut-rate prices, as long as there are willing to look past the risk of further fiscal collapse in the region. If recent activity is any indication, many are finding ways to look past the risk.
In November, according to the Times report,
“Wells Fargo bought the $3.3 billion in real estate loans, which are backed by commercial properties in the United States, that had been owned by the former Anglo Irish Bank. Wells has also bought $2.4 billion in loans and other assets from the private Bank of Ireland, which is trying to raise 10 billion euros ($13 billion) after a bailout by the European Union and the International Monetary Fund. Even with opposition from consumer advocates, Capital One Financial could soon win final approval from the Federal Reserve for its $9 billion acquisition of ING Direct in the United States, one of the year’s biggest banking deals. Based in the Netherlands, ING has been forced by European authorities to divest ING Direct, an online bank, after ING required a $14 billion bailout following the 2008 financial crisis.”
While hardly a relief to a general public increasingly at odds with the actions of both their governments and banks, this fire-sale environment could at least provide some breathing room for economies facing a new year of little to no growth and even less confidence.
Image: Spain’s Costa del Sol, Christopher Coats