Things were getting sticky again for banks late last year, but it seems the €1tn or so of cheap money sloshed out by the European Central Bank in its recent LTRO operations has given them a breathing space.
At the Commercial Real Estate Finance Council Europe’s two-day Spring conference, held last week at K&L Gates’ spanking new St Paul’s headquarters, lenders like HSBC’s Matt Webster and Lloyds‘ head of corporate real estate Richard Heath, said the cheap, three-year finance had relieved banks’ funding pressures, at least in the short term.
But the debt buyers attending, who included Lone Star and Blackstone, as well as banks seeking to lend to debt buyers, such as Goldman Sachs and Deutsche Bank, were all hoping the release of pressure on banks wouldn’t slow down deleveraging too much. Deutsche Bank’s Don Belanger was just one who wanted to see more. “There were four non-performing loan portfolio sales in the market in October, which was more than we had seen at any one time in the previous three years”, he said. “Now they have all gone through the process there haven’t been any new, large portfolios for sale. The frustration for a lot of us who are buying or financing these portfolios is they are not coming out quickly”.
One of the big four accountants present at the conference is advising a number of banks that need to shrink balance sheets, particularly in Ireland and Spain. This firm’s director of portfolio solutions pointed out that it takes time to prepare these portfolios, and said his team is being invited to pitch, so there will be more. Nevertheless, a refrain over the two days was that the bid-ask spread, between banks and prospective buyers, is still too wide and is holding up deals.
Speakers from RBS in particular were clear that they viewed private equity buyers’ cost of capital as usually too high and, with the safety net of the Asset Protection Scheme, said the bank is not under pressure to sell at a loss. They pointed out that RBS also has the option to sell assets to its West Register vehicle, which gives the bank a floor on price.
However, the handful of institutional buyers with a lower cost of capital who were there, like M&G Investments, said they are hunting for performing loans rather than non-performing loan-to-own portfolios with angles.
There was advice from various quarters about packaging loan sales to get the best possible price: ensure the documentation is clear – but not overwhelming in quantity – said James Katchadurian of US firm EPIQ which advised on the due dilligence for the sale of Anglo Irish’s US book. Vendor financing also helps sharpen the pencil, several speakers added.
The availability of finance, stapled or otherwise, was the conference’s other hot topic. There was agreement that debt is available for good quality property and from a select band of international banks for loan portfolios; but not for the secondary property underpinning the wall of maturities.
This may change for the better as more shadow banks and insurance groups aggregate capital and get set up to invest in debt, thus introducing some competition and improving liquidity a bit. Everyone felt this time was creeping closer, but that the disintermediation of the banks will continue to be slow (one side issue raised was: how will these newcomers, which are not banks, be regulated? How uneven will the playing field be in future?).
In the meantime the cost of borrowing will continue to rise – and in the UK, slotting will push it up further the UK banks present said. No wonder the new investors are in no hurry.
See April’s issue of Real Estate Capital, out on Monday 23 April, for a full conference report
Jane Roberts, editor
