European Banks Seen Selling $109 Billion of Bad Debt in 2015

European banks will offload 100 billion euros ($109 billion) of unwanted loans this year to cut costs and restructure their balance sheets, according to a report by PricewaterhouseCoopers LLP.

by Alastair Marsh - published in Bloomberg, March 24, 2015

Banks will jettison bad debts and loans that no longer fit with their business strategies as prices rise, PwC said. That’s up from 91 billion euros last year and will be the biggest annual tally since Europe’s banks started downsizing after the financial crisis, said about 60 percent of more than 60 hedge funds, banks and private equity firms surveyed by PwC for the report.

Loan disposals by banks have grown every year since 2010 as scrutiny by the European Central Bank and pressure from regulators to shore up balance sheets prompted lenders to restructure and downscale their operations. That’s provided a growing supply of assets for U.S. investment firms including Lone Star Funds, Apollo Global Management and Oaktree Capital Group LLC, which invest in distressed assets.

“There remains very significant investor interest in acquiring banking assets as the sector continues its unprecedented and much-needed restructuring,” said Richard Thompson, a partner at PwC in London. “There is significant competition between the numerous investor groups looking to acquire assets and, as a result, we’ve observed price increases in the market, making it much more attractive for banks to sell.”

Soured unsecured retail loans will fetch an average of 35 percent of face value in 2015, up from 30 percent last year, according to PwC’s survey. Secured debt, including mortgages, will jump to 49 percent from 29 percent.

Performing commercial real estate loans will sell at an average of 93 percent of face value this year, the most since at least 2012, according to the report.

Italian banks hold the biggest proportion of non-performing loans in Europe at 185 billion euros, or 15 percent of the total, PwC said. They will sell more than 15 billion euros in 2015, up from 8 billion euros last year, according to the report.