Sareb Updated

Background (Sociedad de Gestión de Activos Procedentes de la Reestructuración Bancaria) Background Jurisdiction: Spain Name (English): Company for the Management of Assets Proceeding from Restructuring of the Banking System Classification: Timed Special Purpose Vehicle Created in 2012 as a public-private special resolution instrument, it was a result of the conditions to be fulfilled by Spain to receive a financial rescue package of €41.3 billion from the European Union’s permanent crisis fund, the European Stability Mechanism. SAREB was designed without a mission creep, and was to alleviate the stress of banks by eliminating risky assets from their balance sheets and selling them profitably within a 15-year time period. Functioning and Framework The legal framework of the SAREB was the brainchild of the EU Commission, the European Central Bank, and the International Monetary Fund. In furtherance of the extensive state measures to combat the effects of the disastrous 2008 economic crisis, The Fund for Orderly Restructuring of the Bank Sector (FORB) was created by the state in 2011, was SAREB’s predecessor and held a 45% stake in the functioning of SAREB. Operation of SAREB It was through FORB, and the Bank of Spain that banks were compelled to dump their toxic mortgages and financial assets with SAREB, so a clearer picture regarding the bank’s ongoing business concerns could be ascertained by potential investors. SAREB was to concentrate on maximizing the value of the stressed assets it received, and the same was integrated in its design, as government backing meant that it could afford to manage a troubled portfolio for a pre-planned but long duration of 15 years. The SAREB could liquidate the toxic assets by first – selling them directly, or second – through its own funds, or third – by selling the assets through the banks which were directed to transfer their troubled assets to SAREB. Assets under management Eight Companies were statutorily required to transfer their stressed assets to SAREB — Banco de Valencia, NCG Banco Gallego, BMN, Liberbank, Caja3, Bankia, Catalunya, Banc, and Ceiss. This was a mix of nationalized companies and those that received state funding without being nationalized. SAREB has received around 200,000 assets (mostly loans, with some real estate properties) estimated at 50.781 billion Euros. High Expectations, Higher Losses SAREB has consistently sustained significant losses every year since its inception. Further, the pandemic aggravated the losses sustained in the year 2020, and a strategy change for SAREB is being considered by the Spanish government. Experts suggest that the losses are a result of the over-optimistic valuation of the assets transferred to SAREB. Inspirations for the Indian NARCL In line with Dr. Viral Acharya’s thinking, the SAREB seems to be a finite SPV both in scope and purpose. Eliminating mission creep is vital to the success of an Asset Management Company; therefore, its profitability should not be much of a concern as long as it is alleviating stress for the rest of the economy. After fulfilling its purpose, it should be allowed a graceful exit..

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