Investor Appetite for Acquiring Non-core Loan Assets from European Banks is on the Rise

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 believes it will take more than 10 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, 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 [merger and acquisition] activity. Based on our discussions with the major banks around Europe, we expect portfolios with a face value of €50bn to trade this year and €500bn to trade in the next five to 10 years,” continued Thompson. “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.


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