European banks are planning to sell more than euro 30 billion ($40 billion) of assets as the debt crisis increases the need to raise capital, according KPMG LLP.
European lenders are accelerating asset sales after disposing of more than euro 26 billion of loans this year, according to a KPMG study released on Friday. While the amount has been far from the “flurry of activity that was widely expected,” regulatory pressures and a deepening of the European debt crisis is forcing lenders to accept lower prices, the report said.
“Counter-intuitively, we saw a lower-than-expected level of bank disposals of loan portfolios in the first few years after the collapse of Lehman Brothers Holdings Inc,” said Andrew Jenke, director in KPMG’s Portfolio Solutions Group. “But we are now starting to see banks — faced with the triple whammy of sovereign debt crises, increased capital requirements and a funding mismatch — under a lot more pressure to extract value from their loan books.”
Banks including Royal Bank of Scotland Group Plc, Banco Espirito Santo SA and Dexia SA, the French-Belgian bank that is facing a second government bailout in three years, are planning to sell assets because they are under pressure from regulators to shrink their balance sheets and boost liquidity. Lured by the prospect of buying portfolios at a discount, US private equity firms and hedge funds have raised more than $5 billion for funds targeting European distressed assets and corporate turnarounds compared with about $400 million during the 2002 recession, according to London-based researcher Preqin Ltd. Deals have been slow to materialise because lenders aren’t willing to sell at the discounts sought by investors.
“The pricing gap is still there,” Jenke said. “Banks are still expecting more than purchasers are able to pay for the assets. This gap is narrowing in some instances.”
The UK and Irish banks remain the biggest sellers, according to KPMG. RBS agreed in July to sell part of a £1.4 billion ($2.2 billion) portfolio of commercial loans to Blackstone Group LP. Lloyds Banking Group Plc is selling a £6 billion portfolio of shipping loans, according to the report. Anglo Irish Bank Corp said in August it expects to complete the sale of $9.65 billion of US real estate loans.
FUNDS BEING RAISED
Apollo Global Management LLC, Leon Black’s private equity firm, is seeking to raise $2.8 billion for a fund to buy European loans, two people with knowledge of the matter said in August. Oaktree Capital Management LP, the Los Angeles-based private equity firm led by Howard Marks, is seeking as much as $3 billion for a fund that will buy assets in Europe, people with knowledge of the plans said previously. Hedge funds including New York-based Anchorage Capital Group LLC and Marathon Asset Management LP are also targeting Europe.
Asset sales should accelerate in Spain, KPMG said.
“The hottest topic over the past six months has been Spain,” the report said. “Local banks are seeking to shed non-core and non-performing loans and the impact of the caja restructuring is now starting to yield portfolio disposals.”
