Saving the banks in Spain is simple, painful, but simple. If not fixed now, the banks exposure to real estate bad debts will crush them.
Spain’s prime minister Mariano Rajoy has said that he will not allow any bank to fail but is he willing to make some tough calls and sort out the sector, probably at the expense of his own political career? Are banks prepared to self regulate and fix the gaping holes themselves? It remains to be seen- this is what has to be done in order to get the bad debts and rotten loans off the books of the banks in the short term.
1. Politicians, bank board and committee members and those involved in the years of fraud, cronyism and political medley as will be exposed by the ECB before the end of this summer must all lose their jobs, immediately. Whether or not the level of fraud can be considered criminal activity is another matter which must be addressed at a later date.
2. Get conflict of interest out of the banks real estate sales process. It should not matter to the bank officials who the potential investors buy their repossession property from- but in many cases it clearly does!! There are some banks who wont deal with certain estate agents, because they don’t like them, or they hurt somebody’s feelings or whatever it may be. This is insane, but happens all the time. In life we encounter people we don’t like- that’s the way it is, now get on with your job.
3. If you are employed by the bank you cannot own a real estate company, even if its in the name of your wife/parent/pet. It should be illegal and its certainly unethical. If you work for a bank, work for the bank. This rule in non negotiable for a successful escape from mess banks are in.
4. Banks have to establish a Sales Department, staffed by non banking people who know how to sell. The real estate sector in Spain boomed for many years and this was due to independent agents, like Comaskey Properties and many others selling property here in a proper fashion. We ran shows in Ireland and the UK, we had qualifed staff, good web sites and we sold millions of euro worth of properties. Sales is a tough game in any market but especially in a downturn. Why does the banking sector not turn to people who have done it before to help them to offload the property on their books?
5. Be realistic- tell yourselves, the government and the public the truth. Simply knocking 20% off what you are owed on a property does not give a true valuation of what its worth today. How can it? What if the property was 100% overpriced in the first place? Buyers do not care about the value of your balance sheets.
6. Put finance in place. So, a bank is owed 120,000 euro on a property. If an investor comes in with 60,000euro cash to put down, pre-approve his mortgage for the other 50% and do it at branch level that same day. What are you waiting for? Generally when people with cash are willing to risk their own money their intention is clearly to repay the debt.
7. Be a bank. We hear stories of buyers who have agreed deals to buy property in Spain go into a branch to open a bank account and the teller behind the desk tries to talk them into buying repossessions instead. All this does is confuse the buyer and everybody loses. Let us do our job and you do yours.
8. Put an ombudsman in place- an intermediary who can make a decision if there is a conflict between the bank, different agents etc. The appeal process has to be transparent, quick and fair- currently, this does not exist. Once you get the conflict of interest out of the game, this job will be a lot more simple but still necessary.
This is the first half of our “Save the Spanish banks” blog… more to come later this week.
Spain’s prime minister Mariano Rajoy has said that he will not allow any bank to fail but is he willing to make some tough calls and sort out the sector, probably at the expense of his own political career? Are banks prepared to self regulate and fix the gaping holes themselves? It remains to be seen- this is what has to be done in order to get the bad debts and rotten loans off the books of the banks in the short term.
1. Politicians, bank board and committee members and those involved in the years of fraud, cronyism and political medley as will be exposed by the ECB before the end of this summer must all lose their jobs, immediately. Whether or not the level of fraud can be considered criminal activity is another matter which must be addressed at a later date.
2. Get conflict of interest out of the banks real estate sales process. It should not matter to the bank officials who the potential investors buy their repossession property from- but in many cases it clearly does!! There are some banks who wont deal with certain estate agents, because they don’t like them, or they hurt somebody’s feelings or whatever it may be. This is insane, but happens all the time. In life we encounter people we don’t like- that’s the way it is, now get on with your job.
3. If you are employed by the bank you cannot own a real estate company, even if its in the name of your wife/parent/pet. It should be illegal and its certainly unethical. If you work for a bank, work for the bank. This rule in non negotiable for a successful escape from mess banks are in.
4. Banks have to establish a Sales Department, staffed by non banking people who know how to sell. The real estate sector in Spain boomed for many years and this was due to independent agents, like Comaskey Properties and many others selling property here in a proper fashion. We ran shows in Ireland and the UK, we had qualifed staff, good web sites and we sold millions of euro worth of properties. Sales is a tough game in any market but especially in a downturn. Why does the banking sector not turn to people who have done it before to help them to offload the property on their books?
5. Be realistic- tell yourselves, the government and the public the truth. Simply knocking 20% off what you are owed on a property does not give a true valuation of what its worth today. How can it? What if the property was 100% overpriced in the first place? Buyers do not care about the value of your balance sheets.
6. Put finance in place. So, a bank is owed 120,000 euro on a property. If an investor comes in with 60,000euro cash to put down, pre-approve his mortgage for the other 50% and do it at branch level that same day. What are you waiting for? Generally when people with cash are willing to risk their own money their intention is clearly to repay the debt.
7. Be a bank. We hear stories of buyers who have agreed deals to buy property in Spain go into a branch to open a bank account and the teller behind the desk tries to talk them into buying repossessions instead. All this does is confuse the buyer and everybody loses. Let us do our job and you do yours.
8. Put an ombudsman in place- an intermediary who can make a decision if there is a conflict between the bank, different agents etc. The appeal process has to be transparent, quick and fair- currently, this does not exist. Once you get the conflict of interest out of the game, this job will be a lot more simple but still necessary.
This is the first half of our “Save the Spanish banks” blog… more to come later this week.
