Investors turn to Europe
Blackstone Group LP raised more than $US4 billion in 2009 to buy European property assets anticipating that cash-strapped banks would be forced to sell as the region's debt crisis worsened. Almost all of it sat idle for two years.
Today, the inaction has given way to a surge of deals, as lenders from Lloyds Banking Group Plc to Commerzbank AG cut loose soured real estate, corporate and consumer loans. Sales of loan portfolios and other unwanted assets by European Union banks could reach 60 billion euros ($82 billion) in face value this year, according to PricewaterhouseCoopers LLP, the most since the firm began tracking data in 2010.
"Asset sales by banks have absolutely accelerated," said David Abrams, a senior portfolio manager who oversees 3.9 billion euros in funds to invest in European loans for New York-based private-equity firm Apollo Global Management LLC. "We're five years into the crisis, but it's just the beginning of the disposition process."
The rise in European asset sales, driven by looming regulatory deadlines and a stabilising economy, is giving overseas buyers an opportunity to put money to work as the US sharemarket rally makes deals there more expensive. Blackstone head Tony James said in July that deals were shifting to Europe, where buyers could find more distressed assets, from the US, where funds are taking advantage of strong credit and equity markets to exit holdings.
"Europe is a happy hunting ground," said Marc Lasry, chief executive officer of Avenue Capital Group LLC, which has invested more than $8 billion in loans of struggling European firms. "Bank after bank" had been offering his New York-based firm assets for sale, he said at the Bloomberg Markets 50 Summit in New York last month.
Apollo is among the most active investors, amassing loans with a face value of about 12 billion euros, including 11,000 mortgages in the UK. Blackstone, the world's largest alternative-asset manager, last year put $US3.5 billion into distressed European mortgages and properties, the most its real estate group has put into the region in one year.
EU banks unloaded 29 billion euros of portfolio loans and assets such as mortgage-servicing units and branches in the first half of 2013, according to Richard Thompson, a partner at PwC in London. That compares with sales of 46 billion euros for all of last year, 36 billion euros in 2011 and 11 billion euros in 2010. Most sales had been distressed loans, Thompson said.
Hedge funds and private-equity firms have raised as much as 70 billion euros to invest in distressed European debt, so the supply of loans eclipses demand, PwC says.
By contrast, German, French and Italian lenders have been slower to shrink assets. While selling loan portfolios is one way to meet global Basel III capital standards that go into full effect in 2019, many European lenders have sought to avoid realising losses on investments. The European Central Bank's policy of flooding the banking system with cash also has eased pressure to sell at depressed prices.
InvestSMART FORUM: Come and meet the team
We're loading up the van and going on tour from April to June, with events on the NSW central & north coast, the QLD mid-north coast and in Perth, Adelaide, Melbourne, Sydney and Canberra. Come and meet the team and take home simple strategies that you can use to build an investment portfolio to weather any storm. Book your spot here.
Want access to our latest research and new buy ideas?
Start a free 15 day trial and gain access to our research, recommendations and market-beating model portfolios.Sign up for free