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Loan portfolioLoan portfoliomarkets
Germany and Aust
o transaction o transaction
tria update
ContentsPage no
1 Introduction 2
2 German economy 4
3 German banking market 6
4 Loan portfolio market 10
5 Germany’s real estate market 125 Germany s real estate market 12
6 Real estate debt funds 16
7 Unsecured consumer NPLs 18
8 Austria 20
1
I t d ti1
Welcome to EY’s loan portfolio solutions 2013 Since the publication of our European Non-Performing Loa
Introduction1
p p gGermany would develop into a highly active loan transactiodifferently. In actual fact, the German loan transaction matransactions that were not announced publicly as well as a below market expectations, both in volume and in size.Most international investors in non-performing loans and ntransactions. Reasons that the German market has tended economic conditions and positive outlook, especially for thremains one of the most attractive in Europe in terms of fuf i b k ’ b h i G h l t tiforeign banks’ branches in Germany have an ample potenticurrently appear to be adopting either a strategy of hold anNPLs and non-core assets for the time being. A prominent Hypothekenbank Frankfurt’s (former Eurohypo) UK operaFargo Bank and Lone Star Funds.While it appears impossible to predict when the German NPcontinue to maintain the opinion that the need for potentiainterest among investors to acquire German assets in theseactivity in the near futureactivity in the near future.Our Germany and Austria loan transaction update explainsactivities in these markets over the last two years, and give
review and outlook for Germany and Austrian Report in the autumn of 2011, our expectation that p p
on market in the years 2012 and 2013 has turned out rket has been characterized by a number of bilateral small number of portfolio transactions that were well
non-core assets have a good appetite for German to be attractive historically and due to the stable e real estate sector. Therefore, the German market
uture investment potential. By contrast, German and i l l f ti NPL d k t ti it b t ial supply of active NPL and non-core market activity, but nd workout, or are focusing on disposals of non-German example of this strategy is the recent sale of ations for about €5b to a consortium comprising Wells
PL and non-core market will pick up speed again, we al sellers to clean up their balance sheets and the strong e asset classes will eventually result in very active trading
the rationale behind our conclusions and summarizes the es an outlook on our expectations for the market.
2
G 2
As shown by a contribution of approx. 30% to total eurozonwhat is currently a challenging and tough international env2012 compared with the rest of Europe although its depen
German economy2
2012 compared with the rest of Europe, although its depenweakness of other European countries.Thanks to a resilient labor market, strong household balancspending has risen during the first half of 2013. It is expececonomy in the near future. Despite its underlying structural robustness, the German econtraction in Q4 due to a decreasing order book, and starsecond quarter, the economy generated robust growth of 0construction construction. The combination of sound domestic fundamentals, a normawill aid Germany in its efforts to remain the “growth engine
2012
GDP 0.9
P i t ti 0 7
Macroeconomics statistics (annual percentage changes u
Private consumption 0.7
Fixed investment (1.9)
Stockbuilding (% of GDP) 0.4
Government consumption 1.2
Exports of goods and services 4.5
Imports of goods and services 2.6
Consumer prices 2 1Consumer prices 2.1
Unemployment rate (level) 5.5
Current account balance (% of GDP) 7
Government budget (% of GDP) 0.2
Government debt (% of GDP) 81.9
Source: Oxford Economics, EY Eurozone Forecast, September 2013
ne GDP, the German economy has proven to be robust in vironment. Germany recorded considerable growth in ndency on exports means that it remains exposed to the ndency on exports means that it remains exposed to the
ce sheets and above-inflation wage growth, consumer cted that private households will boost the German
conomy ended 2012 on a flat note with a 0.9% rted 2013 with GDP growth of just 0.1% in Q1. In the 0.7%, mainly boosted by industrial production and
alizing risk environment and an improving global backdrop e” of Europe.
2013 2014 2015 2016 2017
0.6 1.7 1.7 1.6 1.5
1 1 2 1 3 1 2 1 2
nless specified)
1 1.2 1.3 1.2 1.2
(1.2) 4.2 3.8 3.2 2.8
0.5 0.5 0.4 0.3 0.1
0.5 0.7 0.7 0.7 0.8
(0.9) 3.5 4.7 5.0 4.6
(1.1) 3.8 4.9 5.1 4.5
1 9 1 9 1 7 1 7 1 71.9 1.9 1.7 1.7 1.7
5.4 5.4 5.3 5.0 4.8
6.9 6.6 6.5 6.5 6.6
0.0 0.0 0.0 0.0 0.0
80.7 80.3 80.6 80.7 80.9
3.
4
G b ki 3
German banking market
German banking ma
201
3
201
Total assets 8,31
Total loans (€b) 3,23
Business/Corporate loans (€b) 1,37
Consumer credit (€b) 22
Residential mortgage loans (€b) 82
Non-performing loans as % of total gross loans 3
The German banking sector is one of the strongest in Euroth l h i th G ’ NPL ti h
Non-performing loans as % of total gross loans 3
Deposits (% year) 1
Loans/Deposits (%) 9
Total operating income (€b) 13
Source: Oxford Economics, EY Eurozone Forecast, Outlook for Fina
than elsewhere in the eurozone. Germany’s NPL ratio has rlow unemployment rate, moderate default rates, coupled wbanks did not experience a surge in NPLs on their balance searnings continue to be blighted by the uncertain economicregulatory pressure.
No signs of a credit crunchThe ECB’s latest Euro Area Bank Lending Survey1 shows tht d d d th f dit diti th
140
standards, and therefore credit conditions across the euroGermany, however, there have been no signs of a credit crdriving force behind the German economy, has shown stromortgage loans. The total volume of residential mortgage expected to further increase over the next few years givenrates and widespread inflation fears among consumers.
Loan overview (in €b)
100105110115120125130135
9095
100
2007 2008 2009 2010 2011 2
Resi mortgages Cons
Source: Deutsche Bundesbank, Eurozone Forecast.
1 The Euro Area Bank Lending Survey, January 2013.
k tarket
12 2013 2014 2015 2016 201712 2013 2014 2015 2016 2017
15 8,318 8,536 8,773 9,008 9,259
39 3,247 3,389 3,581 3,762 3,926
78 1,388 1,469 1,567 1,657 1,742
25 226 233 242 252 261
20 825 840 864 888 913
0 3 2 3 0 3 0 2 9 2 8
pe and has a better lending quality and lower NPL ratio i d t l l l d l t tt ib t bl t th
.0 3.2 3.0 3.0 2.9 2.8
.7 2.2 2.7 3.0 3.2 3.5
97 95 97 100 101 102
34 141 154 166 181 197
ancials, summer edition 2013.
remained at a low level, a development attributable to the with a stable real estate market and the fact that German sheets like other European banks. Nevertheless, bank c and low interest environment as well as sovereign and
hat banks have not yet been ready to ease credit h d t i ti ht f tizone have appeared to remain tight for some time. In
unch. The private household sector, which is currently the ng demand for consumer loans, in particular residential
loans has increased since a slight drop in 2007-08 and is n the strong interest in real property driven by low interest
2012 2013 2014 2015 2016 2017
umer credit Corporate loans
6
G b ki 3
German banks’ lending to the non-financial corporate sectosince Q3 2010. This reflects weakening demand for credit recent lending survey1 of German corporate borrowers rev
German banking ma3
recent lending survey1 of German corporate borrowers revterms of accessing credit. Rather, companies are showing strengthen their equity ratios and are increasingly consideor ABSs2. Falling lending volumes will be a concern for the amidst intense competition. Expected GDP growth of a merbanks’ strongly-performing Mittelstand divisions until the e
Increasing focus on de-leveraging non-core assBanks have undergone significant changes since the outbreg g gaccelerated since 2011. The financial crisis has forced all mtheir previous exaggerations. De-leveraging, shortening ththe main focus for banks over the past few years.In the wake of strategic repositioning and efforts to restrucaccumulated non-core assets with a volume of almost €70reduced their exposure to peripheral European countries.Many banks have announced a retreat from certain busineslending, as well as certain geographic regions, and have escore resolution agencies to unwind their existing exposureswill be to resolve and unwind these non-core assets, and thFMS Wertmanagement (FMS-WM)4, the external non-coreoriginally transferred portfolio of non-core assets from a n2012.Erste Abwicklungsbank (EAA)5, the other external non-cohas recently received a second portfolio of non-core assetstransferred portfolio of €78b. After reducing the first portf€143b at year-end 2012.The strategy pursued by EAA and FMS has been more focuthan outright portfolio sales. However, it is expected that bnon-core units will become more active in selling non-core speed up the resolution process. It remains to be seen whicunits of other banks will pursue in order to unwind their ma
Non-core assets overview of top German banks (in 200
0
40
80
120
160
Source: EY Research, Annual Reports 2011 and 2012.1 http://www.ey.com/Publication/vwLUAssets/Kreditmarktstudie_2 Asset backed securities
NCA 201* For 2011, no NCA data available
2 Asset-backed securities3 EY Eurozone Forecast June 20134 www.fms-wm.de5 www.aa1.de
k t ( td)
or fell in the final quarter of last year for the first time as opposed to suggesting an impending credit crunch. Our vealed that companies are not reporting difficulties in
arket (contd)
vealed that companies are not reporting difficulties in a lower level of readiness to invest, are continuing to ring further alternative funding possibilities such as bonds banks, who are already struggling with lower margins re 0.6% in 20133 could further dampen the activity of the economy is expected to re-accelerate in 2014.
setseak of the financial crisis in 2007, and these changes have g
major German banks with an international focus to correct e balance sheet and improving capital ratios have been
cture their business models, German banks have 0b on their balance sheets despite having significantly
ss segments, such as shipping or commercial real estate tablished either internal non-core units or external non-s in such areas. The main challenge in the coming years he capital markets will monitor their progress closely. resolution agency of HRE, was able to reduce its ominal amount of €176b to €151b by the end of June
re resolution agency in Germany established by WestLB, s with a volume of €124b, which exceeded the first folio by €36b, the two portfolios combined now come to
sed on alternative portfolio resolution strategies rather both external non-core resolution agencies and internal and non-performing assets in the coming years in order to ch portfolio resolution strategies the internal non-core assive non-core portfolios.
€b)
_2013/$FILE/Kreditmarktstudie_2013.pdf
1 NCA 2012
7
Balance sheet structure of German banks1 (in €b)
2,0003,0004,0005,0006,0007,0008,0009,000
01,000
December 2007 December 2009
Lending to banks LeDeposits of non-banks Ba
1 Foreign branches, money market funds (which are also classifiedare not included
Attractiveness of German banksContrary to expectations, and despite a clear mission to reGerman banks have remained virtually unchanged. Howeveduring 2007 to 2009. This development was mainly drivenwrite-downs of sovereign debt as well as a considerable droassets are essentially back where they were at the beginnin
are not includedSource: Deutsche Bundesbank
During 2011 and 2012, efforts were made to strengthen talso in terms of capital. The Basel III capital requirements i(EBA) standards have helped to improve the resilience of ratio of above 10%, all banks met or surpassed the recapitathe end of June 2012. Banks have largely achieved this byearnings, raising new capital or repurchasing hybrid capitareducing risk-weighted assets (RWAs) by selling non-core banks are now well capitalized and are currently under no i
d i RWA H th i h ll f b k i treducing RWAs. However, the main challenge for banks in ttheir business models to improve earnings.Management’s actions to cut costs and restructure balanceincreasingly differentiate between banks based on their strAdditionally, banks that are in a position to increase divide
December 2012 June 2013
ending to non-banks Deposits of banksalance sheet total
d as monetary financial institutions or MFIs) and the Bundesbank
duce their balance sheets, total asset volumes of major er, some banks were able to reduce their balance sheets n by the reduction of banks’ toxic securities portfolios, op in interbank financing. Five years on, banks’ total ng of the financial crisis or even higher. he banking sector in terms of liquidity and funding, but
n combination with the European Banking Authority German banks remarkably. With an average core tier 1 alization targets recommended by the EBA’s stress test at
y improving capital through measures such as retaining l instruments on the one hand, while at the same time assets or initiating risk reduction measures. As a result,
immediate pressure to sell assets for the purpose of th i ill b t l t th b ildi f the coming years will be to complete the rebuilding of
e sheets and business models will be crucial as investors rategic responses to economic and regulatory challenges. nd payouts will be more attractive to investors.
8
L tf li t4 Loan portfolio trans4
Selected loan portfolio transactions
Date Deal snapshot Vendor
Jul 13 UK commercial real estate loan book Commerzb
Feb 13 CRE portfolio Project Chamonix Lloyds
Apr 12 CRE portfolio (NPLs) Bundesban
Apr 12 CDO real estate portfolio Bundesban
Mar 12 Unsecured NPL portfolio Deutsche B
Despite a limited number of larger transactions between 20particularly in the markets for small and medium-sized loanremained significantly below expectations when considering
*Denotes purchase price
Jan 12 CRE loan portfolio Bundesban
Jan 12 US residential mortgages Eurohypo
German banks. Where activity has taken place, it has focusperforming loans mainly made collaterals by properties thageography, i.e., a German bank selling its non-core assets ain Germany.
Current status of the loan portfolio transactionUnlike in other European countries where banks have experdownturn in the aftermath of the financial crisis, increasingloans are not German banks’ number one concern. Howeveour recent European Banking Barometer1, cost-cutting meaGerman banks. For this reason, we expect NPL portfolio saworkout costs in the medium to long term. Banks will also nwith the potential hit on book value they would have to takeinto account, but also legal costs, costs associated with maindirect costs.In the course of de-leveraging, banks have so far held on towith the banks’ expected values Vendors are often unable with the banks expected values. Vendors are often unable value. We expect the conditions to improve over the next 1down under the support of the ECB and banks return to prorestructured business models. In addition, the German real underlying collateral values are increasing, thus leading to Recent successful transactions – especially foreign banks sbetween sellers’ price expectations and investors’ bid priceprices being paid. The successful sale in February 2013 of loans by Lloyds Banking Group in the UK attracted a large ny y g p gas an ice-breaking transaction for the German loan portfolioWhile only 18% of the banks surveyed in our European Bankselling assets over the next six months2, this has now changthey are considering selling assets over the next six-month Investor appetite for German loan portfolios remains high athey have accumulated over the past 24 months to work inbuyers of German NPLs, and new investors are also enterin
1 EY European Banking Barometer Spring/Summer 2013, p.32: Rrespondents ranked ‘Cutting costs’ as top priority.2 EY European Banking Barometer Spring/Summer 2013.
ti k tsaction market
Buyer UPB (in m)
ank Wells Fargo/Lone Star €5,000
Marathon Asset Management €850
nk PIMCO €1,300
nk Lone Star €960
Bank Lindorff €200*
010 and 2012 and a sluggish increase in activity, n portfolios, overall market activity in Germany has g the volumes of non-core loan portfolios on the books of
nk Lone Star €430
Blackstone €230
ed on a mixture of performing, sub-performing and non-t are typically in regions outside a bank’s core operating
abroad or a foreign bank disposing of its non-core assets
marketrienced a dramatic increase in NPLs due to the economic g NPL volumes and loan loss provisions for mortgage r, banks need to improve their bottom line. According to
asures are among the top management priorities for les to play an important role for banks in reducing internal need to weigh up the costs of working out loans internally e if they sold the loans, hereby taking not only staff costs
aintaining the quality of the underlying collateral and other
o their loan portfolios until investor pricing is more in line or unwilling to crystallize the loss if selling below book or unwilling to crystallize the loss if selling below book 8 months as financial markets in the eurozone settle
ofitability on the back of strategic realignment and fully estate market is developing positively and, as a result, higher pricing of loans secured by real estate. elling German loan portfolios – have shown that the gap s has narrowed, with the market revealing strategic
a sizeable portfolio of commercial real estate secured number of international investors and could be regarded go market. king Barometer Autumn/Winter 2012 were considering ged and, in our latest survey, 29% of respondents say period. and a large number of investors are keen to put the funds n Germany. There is a large universe of experienced ng the market given the positive fundamentals.
10
ank of importance of certain agenda items – 51% of German
G ’ l t5
General trends in the German real estate market
Germany’s real esta5
Germany’s strong economic position within Europe has strengthened the trust of national and international investors in the German real estate market. The absence of a price bubble as seen in other European markets, stable regional rent levels as well as the overall condition of the German real estate market have also served to boost the attractiveness of German real estate. The shift in investor focus towards low-risk
ti i th k f th fi i l i i l d t properties in the wake of the financial crisis led to excess demand for core properties and resulted in a forced increase in demand for core+ and value-add properties as alternative investment opportunities. At the same time, deteriorating yields for core properties have forced conservative institutional investors to make more risky investments to achieve the targeted actuarial returns or guaranteed interest rates. There are early signs that funding markets are improving, which accelerates and expands the development from core to core+ and value-add real estate investments.
l ddValue add
OpportunisticCore
Core+
1 BNP PARIBAS, Investment Markt Deutschland, p.13
t k t
Investor interest in risky real estate investments increases
ate market
Conservative institutional investors in particular are still under significant pressure to invest even though their specific risk-return requirements do not allow them to choose between various investment alternatives. On the one hand, institutional investors’ high transaction activity in core properties in Germany’s metropolitan areas has caused supply of these specific properties to decrease in certain areas since 2009. Due to
ti d d i l l h l i O th continuous demand, price levels have also risen. On the other, the achievable yield has decreased, as investors have been willing to pay a premium for core properties. Thus, prime yields for office properties, for example, came to 4.6% in Munich followed by Hamburg (4.7%), Frankfurt (4.75%), Berlin (4.8%), Düsseldorf (4.9%) and Cologne (5.2%) in 2013. Consequently, the average prime yield of these ‘big six’ cities in Germany has fallen below 5% and is about 24 basis points below the mean for the last eight years1.
Investment volume by risk category
80.0%
90.0%
100.0%
Opportunistic
Source: JLL, Der deutsche Investmentmarkt Q1 2013, p. 2
50.0%
60.0%
70.0%
80.0%
1.HJ 08
2.HJ 08
1.HJ 09
2.HJ 09
1.HJ 10
2.HJ 10
1.HJ 11
2.HJ 11
1.HJ 12
2.HJ 12
OpportunisticValue addCore+Core
12
G ’ l t5
A combination of decreasing yields with a general lack of core properties is leading investors to re-focus. Therefore investors are considering investing or have
Germany’s real esta5
Therefore, investors are considering investing or have already invested in core+ properties, i.e., real estate properties with a less favorable location or complex rent/usage structures. It is assumed that the market share of core+ and even riskier assets (core++) will continue to increase in the future. While properties with a speculative value-add as well as an opportunistic risk-return rate played a rather subordinate role in the past, recent trends suggest that investor interest in opportunistic properties has risen, especially in combination with portfolio transactions.
International investors’ interest in German real estate is increasingDomestic players currently dominate the German real estate market, with their collective share rising to 86% in 2009 after falling below 50% in pre-crisis years. g p yHowever, international investors are becoming increasingly active in German real estate transactions due to the country’s attractiveness as a real estate investment location, especially since Germany benefits from the reputation of being the “safe haven” for investors in Europe. Although the German commercial real estate transactions market is dominated by single property transactions, portfolio transactions have disproportionately often been executed by foreign disproportionately often been executed by foreign investors.
t k t ( td)
Alongside investors from Europe and the USA, investors from the Middle East and Asia have a growing interest in the German real estate market while Middle East
ate market (contd)
in the German real estate market, while Middle East investors have already invested over half a billion euros in the German real estate market in 2012. Although Asian buyers have so far been less active in large-volume investments, core-oriented Asian state funds appear to be exploring the possibilities of investing in the European as well as German real estate markets.
Investments by origin of capital
10%
26% 16% 26%
3%6% 15% 12%
80%
100%
Other
Asia
86%
63% 66% 60%
0%
20%
40%
60%
2009 2010 2011 2012
Asia
Middle East
North America
Europe
Germany
Source: BNP Paribas Real Estate, Property Report Investmentmarkt Deutschland 2013, S. 13.
13
Outlook for Germany’s real estate market in 2013/14Despite the persistent macroeconomic uncertainty in Europe, no evidence exists which suggests that this situation could have a negative impact on the turnover of the German real estate investment market. On the contrary, the latest transaction data suggests that the German real estate market is even profiting from the economic crisis. Demand for low-risk properties in Germany during the past three years in connection with limited availability virtually dried out the German real estate supply for core properties. These developments suggest that investors will have to continue to rely on core+ properties in the near future. As described previously, early signs underline the increased interest in value-add or opportunistic assets. Investments in risky assets have not been a focus for investors to date. If these trends consolidate, however, it can be assumed that the trends consolidate, however, it can be assumed that the chances for numerous portfolio transactions will increase in 2013.
14
The image part with relationship ID rId2 was not found in the file.
R l t t d bt f6
An alternative financing and investment vehicle
Real estate debt fun6
Real estate debt funds have just recently become an attractive investment alternative for institutional investors, and an interesting financing alternative for real estate buyers. In the current low-interest environment, institutional investors – especially insurance companies – are looking for alternative investment opportunities with long-term cash returns and low risk. The new Solvency II regulations favor real
t t fi i di t l t t i t t estate financing over direct real estate investments. Direct investments require a capital backing of 39%, indirect investments only 25%. Therefore, real estate debt funds offer the advantages of capital backing as well as risk diversification and provide a higher return.In addition, bank lending remains very restrictive and real estate investors are seeking alternative sources of capital. Simultaneously, a large number of real estate loans will fall due for refinancing over the next few loans will fall due for refinancing over the next few years, and many of these loans have already been classified as non-core by the financing bank.
74 7774
120140160180200
41 43 43 31 21 25 20 12
61 63 5345
34 3021
19
52
34 3728
24
020406080
100120
2011 2012 2013 2014 2015 2016 2017 2018
Major international insurance companies are increasingly stepping in as real estate lenders since they have the capacity and know-how in-house. Smaller institutional investors do not have this know-how and th f f t ti i t i l t t d bt f d
Real estate financing after maturities (financial volume in € b)Source: Corestate Capital AG
Rest of Europe UK Germany
therefore prefer to participate in real estate debt funds. Hence, real estate debt funds benefit from the existing financing gap and regulatory changes under Basel III and Solvency II. The investment priorities and thus the risk structure of real estate debt funds are differentiated by credit tranche, credit performance and the underlying assets. The risk profile determines the target group, term and structure of the fund Management fees usually structure of the fund. Management fees usually increase with a higher risk profile.
dnds
Credit tranche
Mezzanine tranche
Junior tranche
Senior tranche
Credit Performance
Performing
Distressed
Non-performing
Underlying assets
The increase in investor and borrower interest in real estate debt funds is supported by the fact that these vehicles are no longer reserved for opportunistic private equity and hedge funds. The spectrum of
il bl fi i t t i f l l h d f d
Underlying assets
Opportunistic
Value-add
Core
available financing strategies for newly launched funds ranges from the relatively safe, i.e., senior loans, through to the purchase of distressed loans. As a result, all requested yield levels can be served.The target yield varies significantly depending on the risk appetite of the real estate debt fund in question. High margins in the medium – and high-risk bracket will be achieved primarily on the basis of discounts on the purchase of existing real estate loans purchase of existing real estate loans.
Strategy Capital structure LTV range IRR
Senior debt
Senior loans 0–60% 4–6%
Subordi-nated debt
Junior & mezzanine low risk: 60–70%high risk: 70–80%
8–12%12–15%
debt
Whole loan
Senior & mezzanine 0–75% 6–8%
Mixed debt
Whole loans, stretched senior, junior, mezzanine
0–80% 8–10%
Distressed loans
Distressed loans 50–100% 15–20%
It can be observed that a number of real estate debt funds provide only senior loans, although the majority pursue the strategy of offering a mix of whole loans and subordinated loans (total target size of €3–4b). Several of these funds concentrate only on junior and mezzanine loans, while others have a mixed strategy.
loans
16
U d 7
The unsecured consumer NPL market is characterized by smaller and continued transactions rather than occasional large transactions Banks only sell
Unsecured consume7
occasional large transactions. Banks only sell terminated loan portfolios to investors, as the legal framework makes a transfer of the claim after termination much easier and data confidentially is not as strict when selling NPLs. Some banks appear to be more sophisticated and experienced in selling unsecured consumer NPL portfolios than in the past. However, the business of selling NPLs is still not part of day-to-day business for g p y ymany banks.There is a large and experienced investor universe with substantial liquidity in the market. Bearing this in mind, sales processes can be very competitive, with more than 10 investors often being invited to tender. Banks’ approaches vary in terms of portfolio size, the “freshness” of the debt and whether a forward flow (e.g., monthly, quarterly, annually) or spot sale is the
i t t ti t t A tit i t f ll appropriate transaction structure. Appetite exists for all forms of unsecured consumer NPLs in terms of age of debt (i.e., freshly terminated debt vs. very aged loans or residual claims), product (credit cards, consumer loans, etc.) and portfolio sizes. However, most portfolios that come to the market are homogeneous, which makes pricing and an assessment of the strategy easier for buyers.
1 Bundesvereinigung Kreditankauf und Servicing (BKS), Jahrespu
NPL
Buyers prefer to purchase debt that has not been placed with a debt collection company prior to a sale.
h f l f t d d tf li i ft i th l
er NPLs
The face value of traded portfolios is often in the lower double-digit or even single-digit € million area. However, some transactions exceed €100m in face value.Lindorff Group’s acquisition of a portfolio from entities belonging to Deutsche Bank Group and a two-year contract to purchase future terminated claims for a total investment of more than €200m is the largest purchase of unsecured NPLs in Germany in recent purchase of unsecured NPLs in Germany in recent times.Consumer insolvencies were down by 5.5% in 2012 compared with a year before due to the positive economic climate in Germany, while the volume of open claims decreased from €5.8b to €5.4b. Nevertheless, banks still have large amounts of old, partially fully charged-off consumer loans (Kellerakten). In the wake of banks’ efforts to cut costs and streamline In the wake of banks efforts to cut costs and streamline internal processes, we expect banks to start doing larger bulk sales to “clear out their cellars” and then implement regular sales programs to manage the NPL levels going forward.A recent survey by BKS1 showed that in-house servicing remains the dominant strategy for banks (approx. 58%) for unsecured consumer NPLs, followed by a sale of NPLs (approx. 28%), while outsourcing is not yet widespread in dealing with NPLs (only approx. 16%). No significant change in the NPL strategy is anticipated for 2013.
blikation 2013.
18
A t i8
The Austrian banking sector is highly concentrated. The competitive landscape is dominated by four major players: UniCredit Bank Austria Erste Group Raiffeisen
Austria8
players: UniCredit Bank Austria, Erste Group, Raiffeisen Zentralbank (RZB which holds a major stake in Raiffeisen Bank International (RBI), a banking network in Central and Eastern Europe (CEE) and BAWAG P.S.K. Other financial institutions mainly include regional banks with total assets of between €1b and €30b. A substantial share of regional banks is governed by co-operative ownership structures.Most Austrian banks suffered from the challenging post-g g pLehman environment. While major players proved to be relatively resilient due to their rather conservative banking models, substantial write-downs, loan loss provisions and liquidity problems among some medium-sized banks triggered government intervention. Hypo Group Alpe Adria (HGAA) and Kommunalkredit Austria were nationalized and the Republic of Austria participated in a capital increase in Österreichische Volksbanken-AG (ÖVAG) that led to a 43% stake in the Volksbanken AG (ÖVAG) that led to a 43% stake in the bank. Furthermore, the Government had to inject equity into the five-largest banks in order to increase loss absorption capacity and restore confidence1.
Deterioration of credit quality in CEEAustrian banks experienced a prolonged period of stable growth until 2008. A major driver of this development was the rapid expansion into the CEE markets After was the rapid expansion into the CEE markets. After successful market entry in neighboring countries in the late 1990s and early 2000s, some Austrian banks expanded into more peripheral regions such as Belarus, Kazakhstan or Ukraine. Strategies in CEE varied widely among individual players. While some banks strived to obtain market leadership in a few countries, others focused on smaller market shares across many jurisdictions.The sustained difficult market environment in both Austria and CEE has led to an ongoing decline in credit quality. As a result, Austrian banks have suffered a noticeable increase in loan loss provisions and NPL volumes over the past few years. While domestic credit quality remained stable due to the relatively sound economic fundamentals and stable real estate market, the increase is mainly driven by Austrian banks’ loan exposure in CEEexposure in CEE.The aggregated NPL ratio of all Austrian banks stood at 6.7% in 2009 and showed a steady increase until mid-2012, when it peaked at 9.1%. The credit quality of Austrian customers remained almost flat.
1 The Austrian Government injected participation capital (PartizipaAustria guarantees the holder a certain share of profits is non-votAustria guarantees the holder a certain share of profits, is non votMoreover, it is eligible as Tier I capital under Basel II.
However, most NPLs can be attributed to operations of subsidiaries in Central, Eastern and Southeastern Europe (CESEE) with an NPL ratio of 14 7% in Europe (CESEE) with an NPL ratio of 14.7% in December 2012. Entities of some Austrian banks in countries such as Romania, Hungary or Ukraine recorded NPL ratios considerably in excess of 20%. NPLs are covered to a major extent by loan loss provisions. The four major players recorded NPL coverage ratios of between 62.6% and 66.9% in 2012.
Restructuring efforts driven by secondary g y ymarket salesTotal banking assets declined by approx. 4% and 5% in 2009 and 2010 respectively and remained below pre-crisis levels in 2011. The decline in total banking assets and total loans since 2008 was the result of extensive restructurings. Such restructuring efforts were to some extent triggered by regulators, including the European Commission, and in anticipation of regulatory changes , p g y gsuch as Basel III, but also by pressure from capital markets to focus on core business.Restructurings included the disposal of non-core assets and mainly consisted of secondary market sales of subsidiaries, which included the following transactions: ► �Sale of Volksbank International AG, a network of
nine retail banks in Central and Eastern Europe and a subsidiary of the partly nationalized ÖVAG to Sberbank in February 2012
► �Sale of Bank Austria’s subsidiary in Kazakhstan (ATF Bank) to KazNitrogenGaz in March 2013
► �Disposal of the Ukrainian unit of Erste Group to PUJSC Fidobank in April 2013
► �Disposal of the Austrian unit of the fully nationalized HGAA to Anadi Group in May 2013
However some Austrian banks remained acquisitive However, some Austrian banks remained acquisitive, albeit on a smaller scale. For instance, RBI recently purchased Polbank EFG, a retail bank in Poland, and a customer loan portfolio in Romania. Erste Group acquired the wealth management unit of BNP Paribas in Hungary in 2012.We expect to see further de-leveraging and increased sell-side M&A activity among Austrian financial institutions in the coming years. Given the pressure to g y preduce assets, we particularly expect to see increased activity in the sale of non-performing loans both in Austria and in CEE countries as well as leasing businesses/portfolios.
ationskapital). Participation capital provided by the Republic of ting and required to be redeemed within a certain period
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ting and required to be redeemed within a certain period.
A t i ( td)8
High demand for residential real estate, low activity in the office and industrial segment
Austria (contd)8
Austria experienced different developments in various real estate categories. While both the residential and retail markets have enjoyed strong demand in the past few years, the office and industrial segments have lagged behind. Investors are increasingly allocating funds to residential real estate, thus leading to a surge in both demand and prices. The price increase in urban areas has outpaced rural areas. Demand has mainly been driven by the perception of real estate as a “safe haven investment” in periods of economic uncertainty and the low interest rate environment.
Moreover, Austria saw strong demand for high-end retail real estate, i.e., prime shopping centers and high street locations Despite growth in retail spaces in 2012 street locations. Despite growth in retail spaces in 2012 in Vienna, demand outweighed supply. Consequently, vacancy rates in prime locations remain low, while rents showed an increasing trend.Developments in the office and industrial segments were heavily influenced by economic conditions. Office occupiers were reluctant to make relocation decisions and tended to focus on optimizing current space rather than on expansion. As a result, overall activity in the p , yoffice market was low with stable rents and vacancy levels. Likewise, economic uncertainty lowered investment activity and demand in the industrial sector.
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C t t
GermanyThomas Griess Daniel MairT: +49 6196 996 26258 T: +49 6196 996M: +49 160 939 26258 M: +49 160 939
Contacts
E: [email protected] E: daniel.mair@d
Nora von Obstfelder Christoph RoessT: +49 6196 996 27678 T: +49 221 2779M: +49 160 939 27678 M: +49 160 939 E: [email protected] E: christoph.roes
F d i k St bb Li J B kFrederick Stobbe Lisa J. BeckT: +49 6196 996 24828 T: +49 6196 996M: +49 160 939 24828 M: +49 160 939 E: [email protected] E: lisa.j.beck@de
Real EstateAndreas Ewald John KamphorstT:+49 40 36132 25424 T: +49 40 36132T:+49 40 36132 25424 T: +49 40 36132M:+49 160 3943 25424 M: +49 160 939 E:[email protected] E: john.kamphors
Austria FranceRobert Hufnagel Benoit MaillardT: +43 1 21170 1031 T: +33 1 55 61 0M: +43 664 6000 31031 M: +33 6 4679 4M: +43 664 6000 31031 M: +33 6 4679 4E: [email protected] E: benoit.maillard
United KingdomIan Cosgrove Tom GroomT: +44 20 7951 1094 T: +44 20 7951 4M: +44 7715 704 748 M: +44 7500 066E: [email protected] E: [email protected] y g y
Andrew Wollaston Mathieu Roland-T: +44 20 7951 9944 T: +44 20 7951 M: +44 7770 667 332 M: +44 7799 342E: [email protected] E: mrolandbilleca
IrelandLuke Charleton Graham ReidT: +353 1 221 2103 T: +353 1 221 14M: +353 87 262 9051 M: +353 87 684 E: [email protected] E: graham.reid@i
Italy SpainErberto Viazzo David FriasT: +34 0280 669 752 T: +34 0915 725M: +39 348 191 1479 M: +34 0660 815E: [email protected] E: david.friasblan
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