Dodgy boom-year loans cost Spain €2.6 billion

Dubious lending by regional Spanish savings banks in the boom years before the collapse of a property bubble in 2008 generated huge losses in the billions of euros, Spain's Economy Minister Luis de Guindos said on Tuesday.

Dodgy boom-year loans cost Spain €2.6 billion
Most of the dubious operations at regional lenders that have been detected involved real estate deals, the Spanish government said. Photo: Josep Lago/AFP

Spain's bank restructuring fund FROB has identified 42 suspect operations carried out between 2005 and 2008 by regional lenders that needed to by bailed out by the government, he said.

"According to preliminary FROB estimates…the losses from these 42 potentially irregular operations are estimated to total around 2.6 billion euros ($3.3 billion)," he told parliament's economic affairs committee.

Most of the operations that have been detected involved real estate loans, the minister said.

Spain's regional savings banks underwent an uncontrolled expansion fuelled by a decade-long housing bubble and the removal in 1989 on restrictions on establishing branches outside their home regions.

The number of savings-bank branches rose from 13,650 in 1990 to a peak of 25,035 in September 2008, according to a study by the Elcano Royal Institute, a major Spanish think tank.

By comparison the number of branches of Spain's two largest banks, Santander and BBVA, dropped over the same period from 17,075 to 15,617

But after the housing bubble burst in 2008 as the global financial crisis hastened a correction that was already underway in the property sector, the regional lenders needed to be bailed out by the government.

Spain received €42 billion in European bailout funds in 2012 to restructure the sector.

The number of regional Spanish savings banks has fallen from 45 when the sector started being restructured to just seven.

In order to receive the EU funds Spain agreed to create a so-called bad bank, which took over €45 billion in toxic assets from the restructured lenders at heavily reduced prices.

Earlier this month FROB informed public prosecutors of 23 irregular operations that it had detected at Catalunya Banc and Novacaixagalicia which caused losses of around €1.5 billion.

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Ghost homes: 200 buyers lose €3million in Majorca’s biggest real estate scam

Scores of budding homeowners on Spain’s biggest Balearic island have been defrauded out of their life savings after putting forward money for apartments that were never built or never existed.

Ghost homes: 200 buyers lose €3million in Majorca's biggest real estate scam
Photos: AFP

On paper, real estate group Mallorca Investments offered clients the chance to buy apartments through local developer Lujo Casa for a price below the market average.

Budding homeowners would then give an advance of at least 10 percent of the property price to the developer in order to supposedly tie down one of the apartments before it was built. 

The new proprietors would even check that the plans were presented at city councils on the island, which would often instigate a request for a higher percentage from the developer, El País reported. 

Some people put forward as much as €200,000 to own a luxury home in a coastal neighbourhood of Palma, Majorca’s capital. 

Photo: Andres Nieto Porras/Flickr

However as time passed construction work on the commissioned apartment buildings never seemed to get off the ground.

When the buyers demanded explanations from developer Lujo Casa, whose offices were shared with Mallorca Investments, no proper explanation was given.

“When we went months later to ask for explanations, the real estate agency had changed address and there was no employee from the building company either,” one of the buyers who put down first €23,500 euros and then €70,500 euros when the plans were presented at a town hall, told the Spanish daily. 

“When we managed to contact them the real estate agency would ignore us or tell us they had no new information and that they had also been cheated. 

“Nobody at the developer’s answered our e-mails either”.

This nonchalant and evasive reaction was part of the modus operandi of the property group, which according to Spanish Civil Guard sources could be behind the biggest real estate scam in the history of Spain’s Balearic Islands. 

Photo: AFP

Following numerous official complaints from 50 of the disgruntled buyers – young, old, local and foreign – a covert investigation was carried out by Spanish authorities which led them to understand how the estate agency and the developer were operating together and how they were run by the same businessman. 

A quick check online confirmed that the suspected scammer, an Italian man, was continuously sharing pictures on his social media accounts of his ostentatious jetsetter lifestyle, travelling business class to Dubai, popping bottles of the most expensive champagne and driving lavish sports cars through Mallorca. 

The man, called M.P. by Spain’s Civil Guard, has been arrested and is awaiting trial for numerous counts of fraud.

But for the 200 people who put money forward for the ‘ghost homes’, many of whom sacrificed their life savings, there is little indication as to whether they’ll ever see their money or their properties materialize.