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Nata, Pacific, Atlantic: Portugal’s Banks Sell NPLs at a Record Pace
12 September 2018
All signs point to a record year for the sale of portfolios of bad debts by Portugal’s banks. Big foreign funds are buying.
Projects Nata, Pacific, Atlantic Project Viriato. The Portuguese banks’ creativity in naming large portfolios of bad debts rivals that of the country’s names for operations conducted by the Judicial Police. The increasing appearance of such inventive names for rather mundane portfolios of loans reflects the transformation that is taking place in Portugal’s troubled debt market – banks are increasingly selling portfolios of bad debts and real estate assets to large foreign funds.
“2018 will set a new record regarding the volume of loan and real estate sales operations,” says João Ferreira Marques, a consultant specialised in credit recoveries, who nevertheless, refers to the “still considerable” stock of bad debts on some of Portugal’s banks’ balance sheets.
Since its peak in June 2016, the banks have already sold off 15 billion euros worth of non-performing loans, the Bank of Portugal reported in July of this year. The €15 billion in loans – some of which were sold off in large blocks, while others were recovered by the banks themselves – are, however, less than one-third (30%) of the total stock of non-performing loans.
The efforts to clean up the banks’ balance sheets has intensified in recent years. Just this year, the state-owned bank Caixa Geral de Depósitos is expected to finalise the sale of four major portfolios, all named after oceans. Project Pacific, which launched last year, consists of more than 200 million euros worth of mortgages and was acquired by the British private fund AnaCap Financial Partners. Project Atlantic, which has €1 billion in loans to bankrupt or failing companies, saw only foreign-based investors in the final round of negotiations. Project Arctic has about 300 million euros worth of corporate debt and, finally, Project Indian, which has about €300 million in mortgage loans.
A fifth major operation this year, named Project Nata involves the sale of a portfolio worth roughly €1.7 billion euros by Novo Banco. The bank is also in the process of selling a €700-million portfolio of real estate assets called Project Viriato – according to statements by foreign investors to the Jornal de Negócios.
The process of selling portfolios of bad debts
How to the banks profit conduct such portfolio sales? Those banks hire a company, such as Alantra or KPMG, to organise a prospectus of the assets to be sold. Then it invites foreign investors to submit proposals. These are typically private equity funds which are increasingly interested in extracting profits from the oceans of debts left behind by the financial crisis. There are also hedge funds and pension funds, explains João Bugalho, president of Whitestar, a company founded in Portugal by Lehman Brothers and which currently leads the debt recovery market.
These funds then hire credit recovery companies, to whom they pay variable commissions, to attempt to recover the maximum amount possible from the discounted assets, an unregulated activity. The people and companies that are in debt are contacted directly by these companies – such as Whitestar, HipogesIberia, Finsolutia and Servdebt – and no longer have a formal relationship with the original issuing bank. The investors then reap returns that can exceed 10%, though the norm is between 8% and 9%, a knowledgeable market source told Sábado.
Original Story: Sábado.pt – Bruno Faria Lopes
Translation: Richard Turner