Vulture Funds Receive €50 Bn in Loans From Spanish Banks

23/09/2014 – Expansion

Opportunistic funds possess more banking loans in Spain than entites like Kutxabank, Bankinter, BMN, Liberbank, Unicaja or Ibercaja. In fact, altogether, the volume would position them as the seventh largest financial group of Spain, thanks to €50 billion in loans which they have been acquiring for the last three years. The sector estimates that they have paid between €8 and 9 billion for them in total.

The only downside is that such an entity composed exclusively of distressed or defaulting loans would show an incredibly high delinquency rate. However, more and more often one sees the funds buying performing mortgages and loans to enterprises which are considered non-core by Spanish banks.

Although this kind of investors have been known in Spain for long, the landing of big-name, foreign vulture funds burgeoned in 2012. Alike their animal counterparts, their role was to clean the sector up, additionally encouraged by rulings by the Government of Spain.

Thus, the distressed funds started to buy defaulting consumer, credit card and overdraft loans as banks thought them non-core due to lack of collaterals and provisions of 100%. For example, in 2013, Banka transferred a €1.35 billion worth of credits to Lindorff and Elliot. Also, BBVA has recently kick-started a sale of a €2 billion NPL portfolio.

Sources from the sector explain that in this kind of operations, distressed funds make no competition to banks but just the opposite, they serve them as service providers and a way of obtaining liquidity. By no means are they the banks rivals but they invest in economic, technical and human resources while managing the portfolios, says Íñigo Mato, CEO at TDX Indigo. Moreover, they enhance asset rotation, adds Juan Hormaechea, partner at Ashurst.

Ever since 2012, the strategy of distressed funds have changed. Many of them decided to open an office in Spain, purchase a servicing platform from a bank and hunt all types of loans.

Two large transactions which took place in 2014 confirm their firm bet on Spanish market: the sale of the €6.4 billion worth of defaulting mortgages by Catalunya Banc to Blackstone for €3.6 billion and the acquisition of Eurohypo’s business in Spain for €3.5 billion paid by Lone Star.

Both the funds and experts from the market foresee more future sales of non-performing loans by banks to vulture funds. Some of the latter decided to take a step forward and compete with the entites. Apollo may serve as an example as last year the fund bought Evo Banco for €60 million. Other international investors also strive at buying banking licences but the Bank of Spain puts many impediments on their way to them.

Another path to the banking business of Spain leads through credit cards. This way was chosen by, for instance, Värde that purchased 51% of affiliates of Popular and Citi.

If that all was not enough, many funds want to finance through direct lending.


Original article: Expansión (by Jorge Zuloaga)

Translation: AURA REE