Spain’s SAREB Charts Europe’s Course for Healthy Banking Systems

What began as a slapdash solution to Spain’s real estate crisis quickly flowered into a blueprint for tackling Europe’s pervasive non-performing loans. Jaime Echegoyen, CEO of Spain’s public-private initiative SAREB, explains how his “bad bank” became the saving grace of the Spanish banking industry.

With each new project that SAREB puts its hand into, Echegoyen says the key is transparency.

Chief Executive Officer of SAREB, Jaime Echegoyen, served as Chief Executive Officer of Bankinter for eight years and as the head of Barclays’s Spanish and Portuguese unit before taking over at SAREB in 2014.

“Pain is the touchstone of growth”. This age-old truism is particularly true when it comes to Europe’s epic comeback following the sovereign debt crisis. Over the past decade we have seen members of the European Union trudge their way out of economic turmoil year after year. Now that the bloc is largely on the other side, we are able to see some of the silver linings that came with an economically painful experience. One of the best examples is Spain’s SAREB.

A Spanish acronym that translates into Company for the Management of Assets proceeding from Restructuring of the Banking System, SAREB was started in 2012 out of the country’s desperate need to separate its good assets from its non-performing loans (NPLs), the latter of which had torn a hole through the Spanish economy – as well as that of several other European nations. Housing prices in Spain between 1996 – 2007 increased by nearly 200 percent due to a mix of house ownership culture, government incentives, and lax financing requirements on behalf of banking institutions.

SAREB’s CEO Jaime Echegoyen – who hails from a successful career in finance as the head of companies like Barclays Spain and Portugal and Bankinter – said that   separating the damage from Spain’s economy was easier than anticipated. “Once it was identified that the real estate financing market was creating some sort of noise in the whole financial system”, there was an immediate gap to be filled in finding an organisation that would contain it. “That was the reason to create SAREB as the lame duck where all sorts of problems were to go into, and that enabled the rest of the system to basically keep it alive”.

But SAREB was anything but lame in turning the Spanish economy around. In 2012, Spain’s Executive Resolution Authority (FROB) worked hand in hand with the European Stability Mechanism (ESM) to parse out good loans from bad, placing more than 106 billion euros worth of troubled assets into SAREB at a 52 percent discount. This removal of nearly 200,000 high-risk assets (80 percent financial and 20 percent real estate) out of the country’s main banking sector, allowed conventional banks to refocus and continue operating, generating healthy profit into the nation’s economy. Meanwhile, Spain’s specialised “bad bank” – an institution with expertise in handling troubled assets – made quick work of the country’s NPLs. Five years on, the public-private initiative has managed to reduce its initial portfolio by more than 13 billion euros and cancel another circa 13 billion euros in debt. What’s more, the company has become one of the country’s biggest taxpayers in the process, turning over more than 800 million euros in taxes throughout its lifespan.

Just under 46 percent of the SAREB’s capital belongs to the State, through the Fund for Orderly Bank Restructuring (FROB). The remaining assets come from private companies – a total of 32 entities including Santander, Caixabank, Sabadell and several insurers. Copyright: Yeexin Richelle/

While the numbers prove that SAREB’s structure is working, it has not been all easy, and Echegoyen – who has been at the helm since 2014 – is the first to admit it. “All the infrastructure wasn’t there, I mean it was done overnight”. Given that SAREB was created out of an immediate need to contain NPLs, Echegoyen and his team were required to work from scratch, and at a quick pace.

While SAREB is indeed a start-up, Echegoyen helped put that categorisation in perspective: “I would dare to say that it’s probably the largest toxic start-up company that you will have ever heard of”, as the company started from day one with more than 51 billions euros of debt, and a deadline to dissolve all assets within 15 years, all while turning a profit.

The combination has made for quite a tall order, but its one that Echegoyen and his team are tackling more quickly than meets the eye. “The fact that you have a company that has an expiry date is something unusual”, he explains. “One could say that a company normally lasts for what, 30, 40 years? We’re going to last 15”. Needing to squeeze an average of three years of work into one means that “we’ve got to go fast. And that changes our life, speed and everything else we do”, he notes.

But SAREB does much more than just consolidating the country’s high-risk assets from within the walls of its institution. The company is giving back in more ways that one thanks to the real estate properties it manages. “The fact that we do have assets for a long period of time enables us to put some of those assets, whenever it makes sense on social terms, at the disposal and for the use of people, families, throughout Spain, that do need that housing”. The company has been offering the use of its properties for years, and all on its own. “We do it on our own outside of any government or any other sort of banking social programmes”, Echegoyen highlights. The company has 4,000 houses that can be used as affordable housing programmes. “3,000 of them have already been disposed of and are being used by 6,000 people.” Echegoyen says this win-win arrangement is allowing SAREB to reduce the negative impacts of two of the country’s largest issues, unemployment and homelessness. “It generates lots of goodwill for us … in a company that by virtue of its birth and being born in the world of toxicity”, he points out. “By doing this and helping a little, I mean obviously it is a drop in the ocean, but we think that we are doing our fair share as well.”

As the company is still working towards turning its first profit, it is diversifying its operations further through projects like the management of around 800 million euros of land and the creation of an online channel to broaden customer base and give dynamism to the Spanish NPL market. With each new project that SAREB puts its hand into, Echegoyen says the key is transparency. “The most important challenge that we as a company and as an asset management company have to deal with – and I know the ECB makes an important point in this – is that we need to be companies that are fully transparent, and fully and easily accessible companies”.

SAREB’s success in handling the country’s NPLs has been coined the “Spanish way” and the institution’s framework is being seen as a potential framework for solving similar issues among other EU Member States. While Echegoyen is proud of this achievement, he reflects on the learning curve SAREB took to arrive where it is today, and what that says about its prospects for the future. “We do believe that because of our learning curve up until now, we can continue to deliver the fruits of our task… and fulfil the commitment that we have with everybody in our country and in the European community”.

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Editorial Staff

South EU Summit's editorial team is comprised of an international team of journalists and communication specialists with wide-ranging areas of expertise. We pride ourselves in developing firsthand content, and undertaking personal interviews with the most influential players in each market.

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