European loan sales likely to pass €100b in 2014

PwC expects more than €100 billion in European loan sales in 2014, according to a third-quarter year review.

European banks selling non-core loans have had their most active year in 2014 thanks in part to European Central Bank stress tests, accountancy firm PricewaterhouseCooper said on Wednesday.

In Italy alone, where banks came under the spotlight following the ECB review, sales volumes are expected to more than double between 2013 and 2014. PwC also expects that market to be extremely active over the coming years. “There’s enormous interest from investors in the Italian market and with the Italian banking system holding non-performing loans totalling more than €150 billion it has been a recurring question over the last couple of years as to when the Italian market for non-performing loans will take off,” Richard Thompson, global leader for portfolio transactions at PwC, commented in a statement.

The sell-off, of an estimated €2.4 trillion in unwanted loans, is attracting a broad array of potential acquirers. Some traditional financial investors are now firmly focused on building broader financial services businesses across Europe, PwC said. There has been a high level of interest from a number of sovereign wealth funds but their impact has been limited.
Commercial real estate loans make up the bulk of sales and there has been an increased appetite for acquiring performing loans. Of note, PwC has witnessed increased appetite for performing corporate loans, particularly in the BB to B- risk families.

“The combination of rapid deployment, in built risk diversity and significant yield to maturity is highly attractive to a number of funds who are increasingly driving both the primary and secondary market pricing for those rating categories,” a statement read.

In total, €67 billion of loan portfolios have traded in the first nine months of 2014 and another €50 billion is currently in progress. It amounts to a possible €117 billion in transactions for the year, surpassing the €64 billion sold in 2013 by almost 50 percent.

One of the largest transactions currently in the pipeline is Project Aran, a residential and commercial real estate portfolio with face value of €6 billion, sold by Ulster Bank, Irish subsidiary of UK-based Royal Bank of Scotland.

“There has been much speculation concerning the impact of the recent ECB asset quality review and stress tests on likely transaction volumes. Whilst a number of the transactions to date have been prompted by the reviews I expect that, as the market digests the increased information available concerning the state of bank balance sheets, there will be an increased impetus for continued and much needed restructuring of the banking sector in many countries. We will therefore see a continuing high level of transactions for years to come,” Thompson said.