The European non-performing loan sales market has seen a surge of activity, with an 86% rise in the number of live sales in the past six months.
According to Evercore’s latest European Distressed Real Estate Market report, there are currently 22 live sales totalling €51.7bn (£46bn). There is also €26.8bn (£23.8bn) of planned sales.
The spike has been accentuated by an increase in activity in Spain and Italy, while the UK and Ireland is still expected to be a relatively active player, despite having sold €191bn (£170bn) of loans since 2013.
Santander is in the process of selling a 51% stake in a €30bn (£26.7bn) loan book that it acquired as part of its purchase of Banco Popular last month, with Blackstone, Apollo and Lone Star all in the running.
The centre of the UK’s most notable activity over the past six months has been UK Asset Resolution, which manages predominantly residential liabilities from former banks Bradford & Bingley and Northern Rock.
UKAR’s €15bn (£13.3bn) Project Rippon sale to Blackstone and Prudential earlier this year made the UK the most active country in Europe in terms of disposals in the first half of the year, with €17.7bn (£15.7bn) or 63% of sales.
UKAR, which was also the biggest individual seller, is also considering a further €7.2bn (£6.4bn) which is expected to dominate the country’s disposals in the next six months.
European banks and asset management agencies sold €28.1bn (£25bn) of non-performing real estate loans in the first half of 2017 – a 10% rise from H1 2016, according the report.
Blackstone was the biggest purchaser of NPLs, singlehandedly buying €12.1bn (£10.7bn) of loans – or 43% of the total for the six-month period.
Spain only closed €3.2bn (£2.8bn) of deals in the first half, reflecting 12% of all European activity, but this came after a flurry of deals at the end of 2016 and it is expected to become the most active market in Europe by the end of the year.
Nearly 75% of remaining European exposure is concentrated in Italy and Spain, with the UK and Ireland together accounting for 14% of the total.
Launching a European bad bank
The latest Evercore report comes amid proposals set out by the European Banking Authority to launch a centralised European asset management agency.
The structure would see up to €1tn (£890bn) of NPLs bought through a taxpayer-backed fund at a price that reflects their “real economic value”, which would likely be between the bank’s net book value and the market price.
The asset management agency would then sell the assets to the market at a price equal or greater than the real estate value.
Evercore says while this demonstrates European authorities’ commitment to tackling the problem of NPLs, it would face a number of challenges.
One problem is that even though selling NPLs to a centralised asset management agency would cut banks’ exposure to those loans, NPLs would still carry on existing in Europe as a whole.
Deleveraging could also take longer within a centralised asset management agency than if banks followed individual disposal strategies.
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