European outlook for non core and non performing loan portfolios
Issue 4: A growing non core asset market

This is the executive summary and highlights of our European outlook. Our full report has specific analysis and comment on the regions below - for further information please contact Richard Thompson, Robert Boulding or Panos Mizios.

  • Austria
  • Czech Republic
  • Denmark
  • Finland
  • France
  • Germany
  • Greece
  • Hungary
  • Ireland
  • Italy
  • Kazakhstan
  • Netherlands
  • Poland
  • Portugal
  • Romania
  • Russia
  • Slovakia
  • Spain
  • Sweden
  • Turkey
  • UK
  • Ukraine
  • United Arab Emirates (“UAE”)
 
 

View transcript

Attendees:

  • Jonathan Wheatley
  • Panos Mizios
  • Kamala Bucholz

Meeting notes:

Hello my name is Jonathan Wheatley, I am joined here by Panos Mizios and Kamala Bucholz and we are here to discuss PwC’s latest European outlook. This publication discusses the European non-core asset market.

JW: So turning to you first of all Panos, how have you seen the European non-core asset market develop over the last twelve months?

PM: Thank you Jonathan, the European non-core asset market has accelerated over the last year, however, we still think it’s at its very early stages. What we are effectively seeing is a two speed Europe, on one hand you have the UK, Germany, Ireland and Spain which are very active markets and have seen transaction levels increasing significantly since last year. At the same time these countries have experienced credit contraction which means that when banks actively decide to pursue deleveraging, transaction levels are bound to go up. The only exception to that has been France which has seen lending levels remain relatively stable, but at the same time French banks have been very active in disposing of non-French assets. On the other hand, the southern European banks have experienced a more benign transaction environment that’s despite of the fact that contrary to what people were believing these countries have experienced a less severe credit contraction. However, we are speaking to a number of banks at the moment advising them on putting together their deleveraging plans going forward.

JW: Kamala turning to you, Panos mentioned that there are some active western European markets, what would you say characterises those active markets?

KB: So, just to answer the first question, active European markets were UK, Ireland, Germany and Spain and based on a number of transactions that we have completed the key success factor was sellers could absorb losses, for example, in Ireland they were given capital to absorb losses and Spain they had to increase their provisioning levels. In terms of the transactions, or the asset classes that we see come to market, in UK and Ireland these are mostly corporate and SME portfolios, large sized portfolios in Spain and southern countries these are mostly unsecured consumer loans.

JW: And what about southern Europe and central and eastern Europe, how do you see those countries comparing to the northern, Western European markets?

KB: Sure, apart from Spain all of these countries that you have mentioned are just in the very beginning of their deleveraging programme based on our conversation with the banks. The NPLs are rising, they are under mounting pressures to deleverage, however, the deleveraging process hasn’t started yet. Another complication in these countries, for example in central and eastern Europe, is that it’s dominated by local investors who cannot absorb large transaction class or transaction sizes, so in terms of transactions coming to market we believe it is going to be smaller portfolios, mostly in consumer space.

JW: Panos turning to you if we had to summarise what the European outlook would be over the next 12 to 18 months how would you see it evolving?

PM: We expect the transaction levels increasing at a gradual pace we predicted originally that 50 billion of assets would transact in 2012 and we’ve already seen 27 billion of completed sales up to like you know June 2012, which is a very strong start to the year. We don’t share the market view that transactions will boom within the next 1 to 2 years we believe this will be a very gradual process which will complete over a period of like 7 to 10 years. We think that the current active markets, such as UK, Ireland and Spain will remain active; banks there are experienced sellers and the assets sales is a tried and tested method of deleveraging. We think transaction levels in Germany will be below expectations, that is mainly because of the fact that state support provided to bad banks is discouraging them from selling. On the other hand in southern Europe and eastern Europe we believe banks will eventually get their deleveraging plans in place and transactions will increase, we are actually speaking to a number of them at the moment advising them in that respect, however, we believe that transaction sizes will remain below western Europe levels but will increase albeit from very small base.

JW: Panos, Kamala thank you very much indeed. Thank you for watching

Over the last 12 months, transaction levels in the non core loan portfolio and NPL market have increased significantly, with banks more actively looking to dispose non strategic or non performing parts of their loan portfolios. So has the “golden age” of investing in distressed debt finally started?

We believe that the European deleveraging process is still at a very early stage, with many, predominantly peripheral countries covered in our current issue reporting stable or marginal loan growth between 2010 and 2011. We strongly believe that the market has significant room for growth and we estimate that non core loan portfolios with a face value in excess of EUR 50bn will be transacted by the end of 2012.

In our 4th annual European outlook we explore the activity and outlook for the key European non core asset markets.