Loan portfolio transactions no longer dominated by non-performing assets
November 09, 2015
The volume of transactions in the market today continues to be at the highest it has ever been. Given the increasing trend towards performing portfolios, the market is unlikely to slow down in the short to medium term.
I estimate that banks continue to hold around €2 trillion of unwanted loans*. However, the recent influx of performing portfolios onto the market indicates that my estimate could be understated as banks consider more strongly the disposal of non-strategic performing portfolios.
Record rates of disposal
European banks are continuing to dispose of unwanted loan portfolios at record rates and performing portfolios are becoming more popular. In the first half of this year, transactions have been completed for portfolios with a face value of around €75 billion. I estimate the total to be sold in 2015 could reach almost €160bn, up 75% on 2014. This compares to around €90bn in 2014 and a mere €64bn in 2013.
The European loan portfolio market is no longer a deal environment dominated by non-performing assets. Investors are increasingly looking to securitisation as a possible exit to take advantage of ever tightening spreads in the debt capital markets, particularly in residential mortgages.
Performing out performing non-performing…
Only 9% of portfolio deals in 2012 were performing. In 2015 I expect around 40% of all portfolio transactions to relate to performing books. The huge volume of deals that the market is seeing is just as much about banks restructuring their balance sheets as it is about selling non performing pools of assets.
Our latest market report shows that around 40% of all deals this year are expected to be accounted for by sales from UK financial institutions. The UK market is also the leading market for sales of performing assets, many of which are trading close to, or even above, face value. In cash terms the value of investment in UK held assets is closer to 60% of the total investment in loan portfolio assets across Europe.
As well as increased volumes, higher prices are being driven by the continued availability of debt to finance such transactions leading to lower levered Internal Rate of Returns (IRR) and increasingly competitive bidding amongst investors.
*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.
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