Three reasons why there’s been a shift to performing loan portfolio transactions
November 30, 2015
If you picked up our Q3 2015 market update, you would have seen that there has been a wholesale change in the mix of portfolios that have been in the market in the last 12 months - we have seen a shift away from the traditional non-performing transactions in favour of performing portfolios. Indeed, over the same time period we have advised on performing loan portfolio transactions with a face value of nearly €50 billion, achieving an average price in excess of 95% of face value on sales.
Why the attraction of performing portfolios?
This trend towards performing pools has been particularly prevalent in the more mature portfolio transaction markets such as the Ireland, Spain and the UK, driven by three factors:
Firstly, there has been a resurgence in the UK securitisation market and we believe that it will play an increasingly important role in providing sufficient liquidity and credit to the European capital markets in the coming years. Improvements have begun in the regulation and harmonisation of the debt capital markets – particularly with the advent of the Capital Markets Union initiative, led by the European Commission (EC). According to the EC, if EU securitisations could be revived to pre-crisis average issuance levels, then banks would be able to provide almost €100bn of additional credit to the financial sector.
Secondly, there has been a subtle change in the investor mix competing in the portfolio disposal market. We now see a number of smaller or challenger banks pricing performing portfolios very competitively, particularly in the SME and consumer retail space. These banks are able to take advantage of excess liquidity on their balance sheets to achieve a particularly cheap source of debt funding and often backed by private equity houses, who not only bring deal expertise to transactions but are also able to provide further sources of direct financing.
Finally, banks continue to be pushed by stakeholders to improve their capital ratios and metrics. Bear in mind that our estimate of unwanted loan portfolios held by European banks stands at around €2 trillion. About half of this is made up of performing assets
Italy set to take up any slack in 2016
We have predicted loan portfolio sales will top €150bn across Europe in 2015 and with a rush of processes seeking a close by the year end we stand by this forecast. As to 2016, we see no signs of a fall-off in volumes. Looking at our own pipeline, we have a number of significant deals that we will be bringing to market in Q1 2016. Whilst volumes in the UK and Ireland may be lower than 2015, we expect increased volumes in markets such as Italy to take up the slack.
Which markets do you see picking up in 2016? Which asset classes will stand out? Share your thoughts below or schedule a meeting to discuss them in confidence.
