Banks to Shed €20 Bn in Soured Loans in H1

9/06/2014 – Expansion

From an unwanted to one of the most desired assets. Around €20 billion in Spanish banks´soured loans (unpaid mortgages, developer credits, loans to currently insolvent SMEs and overdrafts) are on the straight way to mark the first half of the ongoing year.

These transactions will provide the banks with at least €7 billion gains, even though some of them involve up to 98% discounts. Real-estate backed loans reach higher prices. For instance, at the recent sale of loan portfolio of Eurohypo in Spain the buyers, Lone Star and JPMorgan, paid 80% of the €4.5 billion total value.

The increased activity on the loan market confirms growing confidence in Spain´s economic recovery. Before, only 5 or 6 funds bidded for such a portfolio but now an auction is attended by around 40 potential purchasers.

The tendency may be as well explained by another factor: deleveraging. Large international investment entities poach distressed assets to finance them. For that, Spanish banks began to add more and more properties to loan portfolios, indirectly though. This mostly happens through putting credits granted to now insolvent SMEs which tied-up real estate as collateral (shops, industrial property and even own houses of the debtors).

The strategy turned out to be a gran success allowing the FROB (Spanish acronym for the Fund for Orderly Banking Restructuring) and Catalunya Banc put up for sale one of the top loan portfolios of the year: the €6.5 billion Hercules. Over 40 funds vied for the package and the finalists are: teamed-up Soros and Värde, Pimco, Marathon, Oaktree, Deutsche Bank and Finsolutia, Apollo, Centerbridge and Lone Star, Blackstone and TPG and allied Cerberus and Goldman Sachs.

Although initially the sale was expected to bring about €2 billion, the thrilling competition has driven non-binding offers to up to €3.5 billion. The turn permits the FROB to lower considerably the public aid intended for asset damage covering to below €1 billion.

Deals like the Eurohypo´s Octopus sale or the ongoing Catalunya Banc´s Hercules auction encouraged Bankia to put up for sale its €430 million in REO and developer loans. At the beginning of the year, the bank sold another portfolio called “India 6”.

Other large entities like Santander, CaixaBank or Sabadell are also pondering shedding their soured loans.

Original article: Expansión (by Jorge Zuloaga)
Translation: AURA REE

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Translation/Summary: aura