Investor appetite for acquiring non-core loan assets from European banks is on the rise, says PwC survey
22 May, 2012
· Investors have accumulated nearly €60 billion to invest in non-core European loan assets
· Portfolios with a face value of €50 billion expected to change hands this year
· Less than one in five think debt will be more difficult to raise
Investors expect the sale of European loan portfolios to peak in 2013, as banks begin to plan their refinancing of the liquidity injections received from the European Central Bank (ECB), according to a new survey from PwC.
The majority of investors think the deleveraging process, now underway at European banks, will take at least five years, while the number who believe it will take more than ten years – a view shared by PwC – has doubled since the previous survey was carried out a year ago.
Investor appetite to acquire non-core loan assets from European banks continues to grow.
PwC surveyed more than 50 major investors active in the European loan portfolio market, ranging from investment banks and hedge funds to private equity groups, to understand the perspectives of those looking to acquire non-core loan portfolios from financial institutions.
As well as a rise in the volume of identified non-core loans, the survey results indicate a significant increase in investor appetite. Every respondent plans to make an investment in 2012.
Richard Thompson (pictured), PwC’s European Portfolio Advisory Group Chairman, said: “In the past year the banking sector has been much more open to deleveraging strategies. We estimate there are €2.5 trillion of non-core loan portfolios in the European banking sector, representing 6% of European banking assets.
“The run-off or sale of these loan assets will continue for many years and will make up a major proportion of future M&A activity. Based on our discussions with the major banks around Europe, we expect portfolios with a face value of €50 billion to trade this year and €500 billion to trade in the next five to ten years.
“An interesting development has been the new categories of investor entering the market, such as insurance companies, pension funds and sovereign wealth funds. These new investors demand more stable returns from longer maturity assets and so are more suited to performing portfolio investments.”
Leverage continues to be an important factor in enabling transactions to be completed by increasing prices and liquidity in the market. Over 60% of survey respondents said they plan to use funding for their investments in 2012. Despite the uncertainty in the European financial system, investors remain confident that funding will be available for transactions in 2012 and beyond. Only 18% of respondents thought it would be more difficult to raise debt this year compared to 2011.
Richard commented: “Leverage will play an important role in increasing prices and liquidity in the European loan portfolio market and investors remain optimistic about accessing further funding for transactions this year. However, whether this funding will be available remains to be seen.”
The survey results show that while the UK, Germany and Spain continue to dominate the market for loan portfolio sales, investor interest in Ireland and Portugal is also on the rise, driven by the active steps taken by regulators in those countries to restructure their banking system.
Investors are showing the most interest in commercial real estate (CRE) portfolios. This assets class is expected to see the highest level of investment activity in 2012. 57% of investors plan to make a non-performing CRE portfolio investment in 2012, up from 41% last year.
The market for unsecured retail portfolios, such as credit card debt, also remains active, where sellers’ provisioning levels are higher and specialist servicing capabilities exist.