Bank restructuring remains centre stage

June 03, 2015

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In March 2015, we hosted our sixth European Bank Restructuring and Debt Portfolio Conference. Our annual conferences explore the opportunities opened up by restructuring in the European banking industry and how sellers, investors and servicing companies can capitalise on them.

 

Ten years to unwind?

This year’s conference attracted over 600 market participants from more than 25 countries. At the first of these events back in 2010, we anticipated that it would take at least ten years to unwind Europe’s non-core loans and complete a much needed restructuring of the European banking sector.

 

Still a long way to go…

Despite significant subsequent sale and restructuring, we believe that there are still around €1.9 trillion of unwanted loans sitting on banks’ books*, which shows how far we still have to go. For the first time in our analysis of the non-core market, performing loans now outweigh non-performing loans providing an indicator of how some of the more liquid loan portfolio markets will develop over the next couple of years.

 

Last year, the value of debt portfolio sales reached a record €91 billion, making this one of the most significant areas of the overall deal market. In 2015, we anticipate that deal values will grow still further in what looks set to be another record year.

 

What came through strongly from both the audience-driven questions and the responses during the panel sessions at the conference is the accelerating pace of expansion and evolution within the debt portfolio transaction market. As markets such as the UK, Ireland and Spain mature, investors are looking at a much broader range of asset classes within these countries.

 

Italy and Central & Eastern Europe

Investors are also seeking out new markets such as Italy and a number of countries within Central and Eastern Europe and, with increasing competition in the market, many panellists expressed the view that investors will have to work harder to secure their target returns.

 

Are current business models sustainable?

From a bank perspective, the distressed sales that dominated activity in the early years of unwinding non-core loans are, in a number of markets, now giving way to more root-and-branch restructuring as banks strive to reinvigorate weak returns. Our research reveals that the economic spreads of many leading European banks are failing to cover the cost of equity, which calls into question for many banks the sustainability of current performance and business models. The urgent need to boost returns is providing fresh momentum to the stripping away of underperforming draws on capital, a huge part of which are non-core loans.

 

The conference was a great opportunity for everyone to learn from each other and to network. On behalf of my fellow hosts for the day, Jaime Bergaz and Mike Magee, I would like to thank the 34 speakers and panellists for providing their valuable time and insights and also to all the delegates whose wide ranging and informed questioning generated a lively debate throughout the day.

 

 *This is a high level estimate based on public information concerning non core assets held and stated objectives around reductions in assets. There is limited information available as to the underlying nature of such assets. Consequently this estimate should be viewed as illustrative in nature only and the total amount is likely to include assets other lending.

 

Our full report on the conference is now available to download here – it gives a brief summary of the main themes discussed during the conference. It also includes findings from the live polling, which gave participants an opportunity to convey their views on the direction of the market.

 

Watch the video of the loan portfolio market update delivered at the conference here too.

 

How long do you think it’ll take to fully unwind Europe’s non-core loans? What banking business model do you think is sustainable? Share your thoughts below or schedule a meeting to discuss your situation and needs in confidence.

Richard Thompson |  Global Leader, Portfolio Advisory Group
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