Things are about to gain momentum in the European distressed debt market. Last year, the European Central Bank had made clear that it was going to step up measures to incentivize banks to resolve the non-performing loans (NPLs) issue. In mid-2016, uncertainty over path to Brexit and US Presidential elections had temporarily cooled down the deal making activity, but fundamental balance sheet and regulatory drivers have remained strong.
According to Deloitte, a professional services firm advising banks and investors on NPL transactions, the amount of debt sold in 2017 could almost double to €200bn from the over €100bn in 2016. Italy is expected to play a major role in this wave: €40bn out of the total active deals at the end of 2016 were indeed there. Italy has abundance of NPLs: data by the European Banking Authority show that, as of the 31st of December 2016, Italy held €70.4bn of gross NPLs, more than 20% of the total European amount. Unicredit and Intesa San Paolo are reported to be in the market, in line with their targets of offloading from their balance sheets €37.2bn and €18.6bn respectively by 2019.
According to John Davison, CEO at Pillarstone, a platform set up by the US private equity group KKR “It’s busier this year than it was last year. The banks have NPL and non-performing exposure targets in Italy and Greece and other countries, and they’re serious targets and they’re determined to hit them, and that does change behaviour.” Difference in price expectations between buyers and sellers has been one of the main reasons why banks have been particularly wary about embarking in such operations in the past. Unicredit reported that the €17bn leaving the bank this year as part of the Fino project are going to be transferred to SPVs at 12.9% of their face value.
Another issue concerns the scheme through which the loans are to be transferred. In a speech delivered this month, Vítor Constâncio, ECB vice-president, said that a Europe-wide asset manager for NPLs “would be a welcomed initiative” and would “facilitate raising private funding in the market”. Last week Fitch, a rating agency, reported that the creation of a single EU bad bank, as any move to increase risk mutualisation in the eurozone, would face “significant hurdles”, notably in Germany, although the approach would be beneficial in countries weighed down by large volumes of NPLs. Banks will have to play their moves, at least for now.
Chiara Cauli
According to Deloitte, a professional services firm advising banks and investors on NPL transactions, the amount of debt sold in 2017 could almost double to €200bn from the over €100bn in 2016. Italy is expected to play a major role in this wave: €40bn out of the total active deals at the end of 2016 were indeed there. Italy has abundance of NPLs: data by the European Banking Authority show that, as of the 31st of December 2016, Italy held €70.4bn of gross NPLs, more than 20% of the total European amount. Unicredit and Intesa San Paolo are reported to be in the market, in line with their targets of offloading from their balance sheets €37.2bn and €18.6bn respectively by 2019.
According to John Davison, CEO at Pillarstone, a platform set up by the US private equity group KKR “It’s busier this year than it was last year. The banks have NPL and non-performing exposure targets in Italy and Greece and other countries, and they’re serious targets and they’re determined to hit them, and that does change behaviour.” Difference in price expectations between buyers and sellers has been one of the main reasons why banks have been particularly wary about embarking in such operations in the past. Unicredit reported that the €17bn leaving the bank this year as part of the Fino project are going to be transferred to SPVs at 12.9% of their face value.
Another issue concerns the scheme through which the loans are to be transferred. In a speech delivered this month, Vítor Constâncio, ECB vice-president, said that a Europe-wide asset manager for NPLs “would be a welcomed initiative” and would “facilitate raising private funding in the market”. Last week Fitch, a rating agency, reported that the creation of a single EU bad bank, as any move to increase risk mutualisation in the eurozone, would face “significant hurdles”, notably in Germany, although the approach would be beneficial in countries weighed down by large volumes of NPLs. Banks will have to play their moves, at least for now.
Chiara Cauli