Bain Capital Credit this week bought almost €1bn of bad loans in Portugal and Spain, in a sign of rising demand for distressed assets across the eurozone despite lingering concerns over inconsistent national approaches to the problem.
The group announced on Tuesday a purchase of €476m of non-performing loans from state-owned Portuguese bank Caixa Geral de Depósitos, alongside a deal for €489m of loans to real estate developers from Spain’s Banco Ibercaja.
The Portuguese deal, which is mainly backed by loans to businesses secured against real estate, represents Bain Capital Credit’s first acquisition in the country’s NPL market. The deal comes after the government injected €2.5bn of capital into CGD earlier this year, as part of a state aid agreement with the European Commission.
“We see the potential for further investment in Portugal, particularly in the real estate and non-performing loan markets,” said Fabio Longo, a managing director at Bain Capital Credit.
The deals come as regulators, especially the European Central Bank, push banks to offload their bad assets as part of a broader deleveraging process. The European Commission is also working towards the development of a more efficient secondary market for bad loans.
EU finance ministers on Tuesday made new recommendations on NPLs in Europe to speed up the process of tackling problem loans, an issue that is exacerbated by different legal approaches in various countries, especially Italy, where the banking sector is weighed down by NPLs.
“Some [insolvency frameworks] are really making it much more difficult for banks to dispose of NPLs, particularly in Italy,” said Pablo Portugal, a director at the Association for Financial Markets in Europe. Mr Portugal said the average length of foreclosure proceedings in Italy is five years, compared with less than 12 months in Spain and Germany.
There have also been signs of activity in Italy, with hedge fund Algebris buying a portfolio of loans from Banco BPM earlier this year. But state controlled or influenced entities continue to crowd out foreign buyers on the most significant deals.
Bain Capital Credit’s move into Portugal also comes as the country’s economic recovery continues, reducing Lisbon’s perceived credit risk. Yields on Portuguese 10-year government bonds, which move inversely to prices, last month hit nine-month lows of 2.85 per cent.
More sales of NPLs could emerge from Portugal in the coming year if Lone Star’s acquisition of Novo Banco goes through. The bad bank created that assumed the assets of Banif, a bank that failed in 2015, could also begin selling loans, having disposed of its servicing platform to Altamira Asset Management in April. And Santander has assumed more than €1bn of NPLs in Portugal following its purchase of failed Spanish lender Banco Popular that it could sell.
“We’re now starting to see the Portuguese banks open up and execute transactions . . . There’s more pressure from regulators,” said Andrew Jenke, a partner at KPMG.
“The banks . . . have their capital plans mostly in place,” he added.
KPMG estimates that there were less than €1bn of NPL deals in Portugal in 2014, compared with €4bn last year and an anticipated €5bn over 2017.
While this week’s purchase is Bain Capital Credit’s first deal in Portugal, the company has now bought nine portfolios in Spain since 2014.
Another factor leading to differences across European countries is the array of approaches taken to the eurozone crisis. In Spain and Ireland, for example, bad loans were sold into a central “bad bank”, which facilitated sales of portfolios to investors.
Source: Financial Times