The cornerstone of its growth: bad property loans that brought Europe’s banking sector to its knees.
“This is a very good to time to be doing what we’re doing,” said Jonathan Banks, director at Mount Street.
Under pressure from regulators to clean up their balance sheets, European banks have unloaded loans at a record pace. The debt portfolios have mostly been snapped up by private equity firms, which pay loan servicing companies to analyse the portfolios, collect cash from borrowers and take on other administrative work.
Banks in Europe sold nearly €65bn ($92bn) of commercial and residential property loans in 2014, up from €19bn in 2012, according to a PwC report.
Among the big buyers are private equity firms, including Blackstone Group and Lone Star Funds. In a deal in June, German lender Commerzbank sold a portfolio of Spanish property loans for about €3.5bn to Lone Star and J.P. Morgan Chase.
Overall, US private-equity firms were involved in 81 per cent of distressed-loan transactions in Europe last year, according to broker CBRE Group.
“It is the first time you’ve had a deluge of at this scale,” said Blair Lewis, CEO at UK property services company Hatfield Philips.
The UK and Ireland accounted for 60 per cent of all transactions last year, but there was a surge in the Spanish market, where volumes more than doubled.
A danger is that shifting loans from European banks’ balance sheets to private equity firms doesn’t necessarily resolve the problem of the region’s debt overhang.
Critics say moving such a high volume of bad debts out of banks comes with risks.
With loans passing from banks to investors, “naturally, there will be winners and losers,” said Edward Daubeney, head of debt advisory at DTZ. “We shouldn’t forget that although this deleveraging is positive, the debt isn’t being repaid.”
The Wall Street Journal