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Banks, three players for the NPL management

07 May, La Repubblica

After an initial phase when banks’ bad loans attracted many specialised operators, three big operators have now consolidated in the sector: DoBank, Cerved and Intrum. They all aim at expanding by buying non-performing loans, even though they differ a lot one another. All together they hold bad loans for a value around 180 billion euro, mostly originated from Italian banks. They’re the big three of credit collection:  DoBank, Intrum and Cerved. Behind them, there is a little army of servicers, namely those companies collecting the money from who has a mortgage or a loan and stopped paying the instalments.

The last arrived in the market is Intrum. Thanks to a remarkable operation carried out together with Intesa Sanpaolo, the company entered the Italian market obtaining NPL for about 30 billion, in addition to the 10 billion it already held. The new company that acquired the Intesa credit management platform along with its 600 employees hasn’t a name yet, it’s owned by 51% by Intrum and by 49% by Intesa. Intrum is the European leading company in the credit services sector, it’s present in 24 countries and has over 8 thousand employees. The company was born as a credit servicer specialised in the collection of unpaid utility bills. In the last few years, Intrum sensed the potential of banks’ bad loans and it acquired the necessary platforms. Antonella Pagano, Intrum Italia managing director, explains: “For instance, in 2010 Intrum concluded together with Santander an operation similar to the one with Intesa Sanpaolo, acquiring the platform of the Spanish bank which remained a minority shareholder”. Intrum aims at working also with other banks in Italy, overcoming the natural suspicion they may have towards whom manages the NPL of the first Italian bank. “We already do that in Spain, granting maximum confidentiality through data segregation”.

However, not all the companies have the same business model. DoBank was born from the merger of Italfondiario and Uccmb (the Unicredit platform sold in 2015 to some Fortress affiliated funds). Nowadays, it’s the leader in the sector with asset under management for 88 billion and over 17 years of experience. DoBank has just finished the integration among the various platforms and is listed on the Stock Exchange since last year. Today, the company pursues new objectives in the field of bad loans. DoBank manages credits on behalf of Unicredit and other leading banks. The substantial difference between the bank and the servicer is that this latter manages the NPL on behalf of others -which are still the owners of those NPL –, the gain is based on the management commissions, fixed as well as variable. When managing NPL portfolios (these are generally sold in Italy at very low prices, between 18% and 29%), the bank deconsolidates them from its financial statement and the gain from the servicer depends on how quick it will be in collecting the credits. The quicker is the collection, the bigger the gain will be. In some cases, DoBank is also the co-investor of the NPL portfolio together with the bank the sold it in order to “align interests”. The price of each portfolio depends on the type of credits it contains the maturity and the presence or not of guarantees. Intrum too manages and acquires NPL. The critics of such models say that there is a conflict of interests in such a model since the servicer might be more motivated in collecting the credits it purchased rather than those that it doesn’t own. However, it’s also true that the banks sell NPL request to servicers precise disposal conditions in their contracts.

Whereas Cerved has a totally different model. Managing 48 billion, it’s a “pure” manager of the NPL that are kept in the banks’ statements. Therefore, there are no conflicting interests since the company earns only if it manages to collect the amounts owed or to sell the collaterals, in most cases real estate. Cerved believes that its nature of “third party” will bring other banks to assign to the company their NPL without the worry of disclosing their information.

There are still NPL between 50 and 60 billion to allocate. Some other bank might decide to sell them. The most interesting opportunity is represented by cooperative banks such as Ubi, Banco Bpm and Bper. All these three banks have credit collection platforms. They might follow Intesa which at first decided to keep its platform for then selling it. It’s clear now that there is a market for servicers since these can manage NPL more efficiently than banks. In the past few days, several servicers contacted Banco Bpm to evaluate the acquisition of its platform managing NPL for 17 billion. Besides the three cooperative banks, other banks that might consider selling their platforms and NPL portfolios are the Italian branches of European groups such as Deutsche Bank, Bnl-Bnp Paribas and Cariparma.

Beneath the big three, there is plenty of servicers. The biggest are Prelios (7.5 billion managed assets), Credito Fondiario, Fbs and Guber Banca (all with 7.4 billion), Holst Finance (6.6 billion), Sistemia (4.9) and Me Credit Solutions (4.1), while international companies dominate the market of NPL management, having multiplied the acquisitions. Who wanted to enter the appealing Italian market bought what it could. Before buying the Intesa platform, Intrum acquired Caf at the end of 2017. In the meantime, Kemper acquired Prelios, Kkr bought Sistemia, Varde Guber Banca, Lone Star Caf, Cerved Credit Management acquired Tarida and Recus as well as the platforms of Credito Valtellinese and Banca Popolare di Bari, Bain Capital bought Harit (now called Aquileia Capital Services), Arrow Parr Credit, Europa Investimenti, Zenith service, Kruk Agecredit. Domenico Torini, Kpmg partner, explains: “In the past few years, the most significant operations have concerned the acquisitions of the banks’ platforms. All the others have been operations for the consolidation of the servicers in order to acquire new expertise or to enter the Italian market in the case of foreign investors”. In fact, servicers vary a lot one another: some collect only utility bills, others work with companies that asked for the agreement among creditors or that declared bankruptcy, some others collect money from developers and real estate leasing companies. Finally, there’s who, like Sistemia, that focuses on a technologic platform for the prompt action in real estate auctions.

This consolidation process isn’t finished yet. It will be when there will be only a few groups left. Servicers were born mainly to manage Italian NPL portfolios acquired by the international funds, earning from the difference between the low purchase cost and the value collected, necessarily higher. The first NPL were sold below 20% of their nominal cost, in other cases over 40%, those of Intesa were sold at 29%. The risk for the investors rises with the price, even though the percentage itself is not very relevant, as it all depends on the quality of the credits included in the portfolio. Guido Lombardo, Credito Fondiario (former Fonspa) chief investment officer, warns that: “Even the investor might be wrong, as it happened in the past. This is the reason why is best practise to bring the company managing the NPL to risk together with the investor. We co-invest. In this way, if we don’t manage to collect, not only we worked for nothing, we also lost money”. Did those who invested in the Italian NPL make a bargain? “We don’t know yet. We’ll see in 5-7 years”. The appointment is for 2023 then.

Source: La Repubblica

Translator: Cristina Ambrosi