What impact will AQRs have on the European portfolio market?

In my last update I pondered whether the ECB’s asset quality reviews (AQRs) will go far enough. The AQR results are now being finalised and local regulators are sharing their findings with the ECB. These results won’t be announced publicly until late October but our work on the AQR has provided us with valuable insights on the likely outcome of the AQR on banks clients and the transaction market.


Our European network of firms is working with a substantial number of the 128 financial institutions within the scope of the AQRs. Our role has been split between performing the AQR for the local regulator and helping banks to prepare as they have the AQR performed on them.


Who will be most impacted?

Over the summer, many of you have been asking us for our views on which banks will be most impacted by the AQR and what this will mean for portfolio transactions.


First movers

There are a number of ways of tackling this question. Those banks that have raised capital ahead of the game may be in a better position to dispose of both non-core portfolios or businesses once the AQR process is over. The AQR is also likely to change banks views’ on how much capital their activities are using up This will mean they need to revisit their core/non-core split.


The IFRS effect

The release of the new accounting standard (IFRS 9) on loan loss provisioning will be another driver of banks revisiting how different loans in their portfolio will consume capital going forwards.


Southern Europe

We have performed our own analysis of the countries that will be most impacted by AQR. It will come as little surprise that we expect to see an increase in transactional activity in a number of southern European countries and I would say there is significant investor interest in Italy at the moment. 


The AQR and stress test process will be a major prompt for portfolio transactions and I estimate that portfolios with a face value of around €100bn will trade this year. I think next year we will see similar levels.


It’s not just about asset disposal

Asset disposals will be just one aspect of what bank boards need to consider. We are currently helping banks think through the other areas that will be impacted by structural reform.


Next month I will share some thoughts on the future of the banking landscape.


Download our latest market update here.


What impacts have you seen the AQR have on European banks? Share your thoughts in the comments box below or set up a meeting if you’d like to discuss things more confidentially.

Richard Thompson |  Global Leader, Portfolio Advisory Group
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