Föhrenbergkreis Finanzwirtschaft

Unkonventionelle Lösungen für eine zukunftsfähige Gesellschaft

Tools for Cleaning Up Europe’s Bad Debt: 18-Wheeler and a ‘Strong Stomach’

Posted by hkarner - 10. August 2017

Date: 09-08-2017
Source: The Wall Street Journal

Lack of documentation, strategic defaulters stymie banks’ efforts to get nonperforming loans off books

When a small Italian bank was looking to buy a portfolio of nonperforming loans last year, its due diligence turned up an unpleasant surprise: Virtually all the documentation for the 40,000 loans was on paper.

With each loan dossier consisting of about 1,000 pages, “we were talking about several 18-wheelers full of paper,” recalls Andrea Clamer, head of Banca Ifis IF -1.24% SpA’s bad-loans unit. So he knocked the price down by 10%, paying less than 5% of the loans’ €1 billion face value. Teams of employees have since spent months manually sorting and scanning all the paper.

Efforts have accelerated to combat the bad-loan problem afflicting much of southern Europe. In Italy, where 16% of all loans are nonperforming, banks may shed more than €60 billion in bad loans this year, according to PricewaterhouseCoopers LLP, partly as a result of this summer’s €25 billion government bailout of three ailing lenders.Greece has passed new laws aimed at kick-starting a market for bad loans, and banks there have added staff—a fivefold increase to about 10,000—to chip away at their €110 billion of bad debt. Meanwhile, investors have poured hundreds of millions into new funds to buy up debt representing bundles of loans. Investors make money mainly by buy nonperforming loans at a fraction of their face value and then renegotiating terms with borrowers or seizing collateral.

Yet the lenders face such a long slog in bringing the bad debt to manageable levels that bank executives and analysts don’t expect a resolution of the problem for years to come.

Instead, nonperforming loans will continue to eat up capital and depress lending, they say, possibly stifling the long-awaited recovery now under way in Europe.

The enormity of the problem—notably in Italy, where sour loans more than doubled in six years to €350 billion—caused a crisis of confidence in southern banks last year. In response, the European Central Bank has forced several banks to present plans to trim their bad loans.

UniCredit SpA, whose shares plummeted last year in part on concerns over bad debt, sold €18 billion of bad loans to two investors last month. Greece’s Eurobank and Alpha Bank plan to sell more than €6 billion in bad loans by the end of 2018, officials there say.

In a recent report, Morgan Stanley calculates that Italian banks alone have announced plans to dispose of as much as €100 billion in bad loans over the next three years. Even so, it could take Italian banks 10 years to reach the European average for bad debt, says Morgan Stanley.

Meanwhile, the disposal of bad debt in Italy is so complex that banks are unable to recover much on their own. Instead, about two-thirds of the disposals will come from write-offs and sales, often at cut-rate prices that can eat into banks’ capital cushions and profits, according to the analysis.

Indeed, most of the sales announced so far are of unsecured debt at steep discounts. Banks have struggled to sell debt secured by warehouses, buildings or machinery, for instance. In some cases, a lack of proper documentation—one debt servicer says half of all loans he manages lacks crucial information—forces banks or debt servicers to drop attempts to recover the loan.

“For a portfolio worth 300,000 to 400,000 euros, which can include 30,000 to 40,000 borrowers, it takes three months and costs us €20 per borrower simply to have the correct information to start out with,” says Carmine Evangelista, head of debt servicer AZ Holding.

In Spain, organized groups of squatters target properties the banks are anxious to sell, demanding money from the lenders in exchange for vacating the premises. In Portugal, bankers say, it can take them six year to seize assets backing bad loans, roughly double what it takes on average in Europe.

In Greece, cutting bad loans, which make up half of all lending, is a Sisyphean task for its crippled banks.

On a recent afternoon, a dozen protesters turned up at an Athens courthouse where properties foreclosed by a Greek bank were being auctioned. “Scum!” shouted the protesters, who are part of a group calling for overburdened debtors to refuse to repay their bills.

After forcing a notary involved in the proceedings from the courthouse, the group achieved its goal: The auction was canceled.

This fall, Greece will launch a new electronic platform for auctions aimed at circumventing the protests. However, other problems remain.

About half of all restructured debt turns sour again. So-called strategic defaulters—or solvent borrowers who stop paying loans—represent one out of every five bad loans, according to bank officials. Insolvency procedures aren’t nearly sufficient to clean up such huge amounts of debt, say experts. Creditors take several years to secure a court decision on insolvency procedures, compared with six months in Ireland, according to European Union data.

As a result, bankers privately say it is all but impossible to meet ECB-set targets of reducing problematic loans by 40% in two years.

“This is the biggest challenge of my career,” says Theodoros Kalantonis, Eurobank’s Deputy CEO in charge of troubled assets. “This job requires a strong stomach, knowledge of many technical issues and rarely offers any joy.”

Advertisements

Kommentar verfassen

Bitte logge dich mit einer dieser Methoden ein, um deinen Kommentar zu veröffentlichen:

WordPress.com-Logo

Du kommentierst mit Deinem WordPress.com-Konto. Abmelden / Ändern )

Twitter-Bild

Du kommentierst mit Deinem Twitter-Konto. Abmelden / Ändern )

Facebook-Foto

Du kommentierst mit Deinem Facebook-Konto. Abmelden / Ändern )

Google+ Foto

Du kommentierst mit Deinem Google+-Konto. Abmelden / Ändern )

Verbinde mit %s