Europe’s debt collectors have gone from feast to
famine amid a collapse in the number of bank loans turning sour.
Companies that recover unpaid bank debts, and
which thrived in the aftermath of the euro zone sovereign debt crisis, are
rethinking their business models and examining tie-ups with rivals after
COVID-19, an energy crisis and two-decade-high interest rates failed to unleash
a new wave of loan defaults.
Banks in Europe’s south have
largely completed the clean-ups that once fed the bad loan bonanza and pulled
in overseas investment firms such as Apollo, opens new tab,
Cerberus, PIMCO, Elliott and Lone Star, while government support measures have
helped keep companies and households on their feet.
Non-performing loans (NPLs)
have held at 1.8% of total bank loans in Europe for six straight quarters,
official data show.
In Italy, the continent’s
biggest market for bad debts, sales last year totalled 31 billion euros, a
third of the 2018 peak. Back then, virtually all disposals came from banks,
while more than half of the total in 2023 were re-sales.
Shares in some of the
continent’s main players including Sweden’s Intrum, opens new tab –
Europe’s biggest debt collector – and Italian leader doValue, opens new tab hit record lows this month as
investors weigh whether efforts to restructure their business can work. Both
companies declined to comment.
“Several players are undergoing a
metamorphosis,” said Francesco Cataldo, a director at consultancy PwC
Strategy& in Milan.
Keeping loan managers in activity is important
because they can provide a new lease of life to assets – sometimes businesses
or properties – that are tied up in insolvency or restructuring procedures,
helping economic growth.
Higher debt costs, lower bad
loan flows
Many collectors have not only stopped buying new
impaired loans now that debt costs make that economically unviable, but are
also shedding assets bought in the past.
Intrum, whose shares are down
78% this year, in January sold a nominal 33 billion euro loan portfolio to
Cerberus, retaining management of the loans and using the cash to cut its
recently downgraded debt. It is working with advisers to improve its
debt position.
Similarly, Italy’s Mediobanca (MDBI.MI),
opens new tab in October quit the NPL investment business
and sold its arm that held a nominal 6.5 billion euros in bad loans.
Intrum’s ‘capital light’ model
was embraced last week by Italian state-owned bad loan manager AMCO when it
presented a new three-year strategy, saying it would reduce loans under
management and cut its financial debt to zero.
“Banks have minimal
impaired loan levels and high capital buffers,” AMCO said, pointing to
structurally lower new bad loan flows and mounting competition in the sector,
where firms must comply with new European Union regulation by mid-2024.
Banks’ healthy loan books also
threaten collectors that never invested directly in NPLs, relying instead on
contracts with lenders outsourcing debt recovery. As they gradually expire,
those multi-year contracts may not be renewed.
Italy’s doValue, which is
backed by Japan’s SoftBank Group, opens new tab and
has a key UniCredit, opens new tab contract
ending in 2025, is expected to outline alternative revenue sources.
Its shares have lost 47% this year after it reported a 2023 loss on an impairment it booked on its operations in Spain, where it lost a major contract in 2022.
M&A Revival
In a crowded market, mergers
offer an obvious way for debt collectors to reduce competition and increase
scale.
But investment bankers say the
poor performance of listed bad loan specialists renders valuations unattractive
for sellers.
Multiple deals have been
explored but failed to go through in recent years, with varied business models
making it hard to set price tags that would spur big investment funds to sell
the debt servicers they bought in the boom times, the bankers said.
Hopes of an M&A revival
are now pinned on fintech group ION’s 1.3 billion euro acquisition of Italian
loan manager Prelios from U.S. hedge fund Davidson Kempner.
Valued at around nine times
its core profit, Prelios could set a benchmark for future deals, two industry
sources said.
ION gained government
clearance this month to buy Prelios and now needs central bank approval. It is
then expected to merge Prelios with Cerved, another NPL business it bought in
2021.
Original Story: Reuters | Author: Valentina Za
Edition: Prime Yield
