09 Jul 2014

Irish loans sell-off could be genesis of third banking force

Filed under: Uncategorized

THE mass sell-off of loans books by Irish lenders could be used by a US private equity house to create the kernel 
of a third baning force, 
according to one of the country’s leading corporate finance executives.

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So far this year €27bn of Irish business loans, property loans and residential mortgages have been sold by banks, according to new research from PWC.

It compares to €5bn of loans sold by banks in Germany, and €3bn of UK loans sold in the same period – despite the 
much bigger size of those economies. Across all of Europe – including Ireland – the total is €43bn.

The scale of activity is reshaping the Irish banking landscape, PWC’s head of corporate finance Aiden Walsh told the Irish Independent.

Just a handful of buyers dominate the market for Irish loan assets. US private equity firm Lone Star is the biggest single loan acquirer, while Blackstone, Deutsche Bank and CarVal Investors are also active.

Loan sales could ultimately lead to a situation where a big fund accumulates a position in the market so big that the natural next step is to become a loan originator in its 
own 
right, according to Aiden Walsh.

That would mean an investor creating a new entity by extracting assets from the likes of Permanent TSB and Ulster Bank and other lenders rather than investing into an 
existing lender to create 
a “third banking force”.

That would be a blow to Ulster Bank owner RBS, which has hired Morgan Stanley to look at potential partnerships that would give it new financial fire power to challenge Bank of Ireland and AIB.

The scale of loan sales this year includes the liquidation of the former IBRC, and while that is a one-off, the success of the process has changed the dynamics in the market, according to Mr Walsh.

The size of portfolios sold by IBRC’s liquidators and the prices achieved surprised market watchers and have encouraged other banks and NAMA to speed up disposals, he said.

At the same time the ability to close deals, which had been a struggle, has encouraged buyers to focus on Ireland, he said.

Loan portfolio sales were once a rarity.

The “deleveraging” of the banks has a further five years to run, Aiden Walsh predicted. Ironically, a return to profit for banks makes it easier to absorb the capital hit associated 
with disposals made at discounts.

Sales of residential mortgages to unregulated funds are controversial, but the cost of abiding by market norms including in dealing with customers in arrears is being factored in by buyers, according to Aiden Walsh.

PwC estimates the total face value of non-performing loans across Europe to be €1.2 trillion – around 3pc of total banking assets.

In total, banks have €2.4 trillion of unwanted loans.

Irish Independent

– See more at: http://www.independent.ie/business/irish/irish-loans-selloff-could-be-genesis-of-third-banking-force-30416003.html#sthash.jkKkYW1g.dpuf

 

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