European bad banks have €99bn up for sale in live and planned loan sales

Europe’s 10 largest bad banks still have a €233bn in remaining non-core real estate exposure, with as much as €99bn currently mid-way through a sales process or being prepared for disposal, according to new data compiled by Cushman & Wakefield’s EMEA Corporate Finance team in London.

Cushman logoAfter bad banks’ booked loss provisions levels, this €233bn figure equates to a net outstanding balance of €144bn, reflecting 62% of gross exposures. 

The figures in the report relate to the face value of European CRE loans, residential mortgages and REOs held by entities which have been set up by European governments to externally receive and then liquidate the ‘bad’ assets of one or more national banks.

The exposures of bad banks remain much like in 2014, continuing to be dominated by NAMA (Ireland), SAREB (Spain) and UKAR (UK).  These three entities together hold 91% of the €233bn and therefore will continue to be critical vendors of loan portfolios over the coming six to eight years.

Due to the success of existing AMA, further entities are likely to be set up in the near future in the likes of Italy, Romania and Poland, reported Cushman & Wakefield.

Cushman & Wakefield’s Corporate Finance team recorded €9.5bn of closed CRE loan and REO sales in the three months to July, bringing the total for the first half of the year to €23.5bn. 

Notable loan portfolio sales include Blackstone’s $23bn purchase of the majority of GE Capital Real Estate loans, including UK and Continental European exposures as well as global CRE loans; and Aareal Bank’s €350m acquisition of the shares in WestImmo, including its €4.3bn performing European commercial real estate loan book.

Permanent TSB remains at the top of the list of the most active vendors following a string of completed deals earlier in the year.

There is a considerable volume of deal flow which is planned to complete before the year end which will see annual volumes reach between €50bn and €55bn, estimates Cushman & Wakefield’s EMEA Corporate Finance team.

Among the ongoing loan portfolio sales are:

  • NAMA’s €7.2bn Project Arrow, €2.4bn Project Jewell and €608m Project Arch;
  • UK Asset Resolution’s £13bn (€17.6bn) Granite portfolio, the legacy Northern Rock residential mortgage securitisation loan pool;
  • Lloyds Banking Group’s €4.2bn Project Poseidon;
  • RBS’ €2.6bn Project Finn;
  • Aviva’s £2.6bn (€3.6bn) Project Churchill; and
  • GE Capital’s €740m German NPL sale to Kildare Partners.

Cushman & Wakefield’s Head of EMEA Loan Sales, Federico Montero, said: “Buoyed by the successful sales of existing entities in Ireland and Spain, the currently less active asset management agencies (AMA) will look to increase their disposal activity to take advantage of growing investor demand.

“Additionally, Europe can anticipate the establishment of further AMAs by the end of 2016. However, due to the smaller nature of the related local banks, it can be expected that the newly formed AMA will not have the same scale of troubled assets associated with the likes of NAMA or SAREB.”

Having established four ‘bad banks’, China may be the next stop for opportunistic investors once activity in Europe eventually subsides, added Cushman & Wakefield.

Frank Nickel, Chairman of Cushman & Wakefield’s EMEA Corporate Finance, said: “Despite a relatively subdued start to 2015, it would be a mistake to assume that activity in the European CRE loan sales market is subsiding. 

“Closed sales in the last three months are below those recorded in Q1 2015 or any quarter in 2014, but behind the scenes there has been a flurry of preparation work as key vendors line-up ‘mega-deals’ for the second half of the year.  No doubt, investors will have plenty of distressed opportunities before the year is out in which to invest their capital across the UK, Ireland and Europe as a whole.”

CoStar News understands that FMS Wertmanagement is considering two further country-focused loan portfolio sales for the bad bank’s Netherlands and Italian sub and non-performing loans, following the successful sale of the Project Gaudi NPL to Oaktree Capital Management.

FMS Wertmanagement, spun out of Hypo Real Estate in 2010 as the nationalised bad bank, has reduced its commercial real estate loan book by €18.6bn to €8.6bn over the four years and three months to the end of 2014.

Of this remaining €8.6bn, FMS Wertmanagement has around €500m in loans secured by commercial properties in the Netherlands and circa €300m secured by Italian commercial properties.

SAREB is also expected to have a busy second half of 2015.

jwallace@costar.co.uk

About CoStar News

Finance Editor, CoStar News
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