NPL portfolio sales: What can we learn from the Global Financial Crisis?

November 19, 2020

by Richard Thompson Partner, Financial Services Lead Advisory, PwC UK

Email +44 (0)7711 495236

by Robert Boulding Partner, Financial Services Lead Advisory, PwC UK

Email +44 (0)7970 829669

When Lehman Brothers went into administration in 2008, there was no shortage of potential buyers for its loan portfolios. As part of the administration team, we remember hedge funds queuing around the block – metaphorically speaking – to buy assets.

As we observed in our first blog in this series, the COVID-19 pandemic is expected to create another big rise in non performing loan (NPLs). So is there anything that we can learn from previous experience?
The NPL sales market has traditionally been opaque, which has made analysis difficult until now. But that’s about to change.
Since 2011 we have tracked every portfolio trade on the market – covering over €800bn face value of portfolio transactions. We have analysed this rich data set and will discuss our findings in a series of blogs in the coming weeks. But let’s start with asset sales by geography.

Richard Thompson blog 2

We can see a number of trends that could well be repeated as we move into the next phase of this crisis:

  1. Northern European and Spanish banks went first – and probably will again
    Many Southern European countries still haven’t sorted NPLs from the last crisis, and as a result we could see quality acting as a magnet and a flight of funds from Southern to Northern Europe in the next few years. Interestingly, UK and Spanish banks seem to have taken larger provisions than others, which could give them greater flexibility over pricing.
  2. Domestic loans are dominating
    In the years after the GFC, many European banks sold overseas assets and retreated back to their home countries. As a result, the first wave this time is more likely to involve a greater proportion of banks’ domestic assets. We also expect banks to continue reassessing their overseas assets and retreat from more markets.
  3. Not all crises are equal
    The GFC wasn’t, in fact, global. Many European countries didn’t need bad bank divisions or major regulatory interventions, which means that they don’t have the infrastructure for NPL portfolio sales in place on the scale of,say, Ireland, Spain and the UK.
    That means those that already have the infrastructure in place to deal with NPL sales will, generally, fare much better. Other countries will have to act quickly to build a deals infrastructure and attract capital if they are to successfully compete.

The other point to make is that some Southern European countries, such as Italy and Greece, still haven’t cleared out all of the stock from the last crisis despite being major sellers in recent years. Investors with back books will already be seeing a deterioration in performance data as payment holidays kick in and less cash is collected. In this environment, we think that known markets that show realised returns for past investors will win out.

Look out for more from us soon on NPL portfolio sales and what we can learn from this data.

Read more about Financial Services Lead Advisory.

by Richard Thompson Partner, Financial Services Lead Advisory, PwC UK

Email +44 (0)7711 495236

by Robert Boulding Partner, Financial Services Lead Advisory, PwC UK

Email +44 (0)7970 829669