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European Portfolio
Advisory Group
Market update
October 2013
Click to launch
2

Publication Issue
European NPL outlook and transactions in key markets

Welcome to our bi-annual market update.
This short document covers our latest
analysis of the level of non-performing
loans around Europe, together with a quick
round up of loan portfolio transactions.

Richard
Thompson
Chairman,
European Portfolio
Advisory Group

3

Publication Issue

Reported NPLs have continued to increase
mainly driven by countries in Southern
Europe (mainly Italy, Spain and Greece),
along with Ireland. There are 6 countries,
Germany, the UK, Spain, Ireland, Italy
and France that are reporting NPLs in
excess of €100bn in their banking system
at the end of 2012 – a staggering total of
nearly €900bn. With an uncertain
economic climate it is difficult to forecast
any meaningful reduction in aggregate
across Europe and indeed we believe that
reported NPLs in many countries will
continue to rise over the next couple of
years, adding further impetus to the
already buoyant loan portfolio market.

In calendar year 2012 we saw loan
portfolios with a face value of €46bn
trade, primarily originated from banks in
the UK, Ireland, Spain and Germany and
at the beginning of this calendar year we
forecast an increasing volume of deals in
2013 – with a face value of €60bn. We
have not been disappointed, with over
€46bn transacted in the first 8 months
with a further €12bn in the pipeline. Our
expectations for the year are likely to be
exceeded – indeed we are currently lead
advising on deals totalling over €8bn which
we expect to complete by end of the year.

Price, of course, remains a much talked
about issue when looking at the potential for
transactions. Our latest survey of investor
return requirements will be published in
the next few weeks. This survey, covering
expected buying behaviour, shows return
requirements remaining largely
unchanged over the last year – but there
is fierce competition for deals and demand
continues to outstrip supply.
I hope you find this publication useful, and
if you would like any further information
please contact me or one of my colleagues
listed at the end of this document.

These transactions are set against the
backdrop of a continuing significant
deleveraging challenge facing many of
Europe’s largest banks – the majority of
the top 50 having established non-core or
equivalent divisions, comprising both
performing and non-performing lending,
with the objective of achieving an
increased focus on selling or running
down unwanted assets.

3
NPL by country 2008–2012
In billions EUR

2008

2009

2010

2011

2012

Germany

142

204

192

179

179

United Kingdom

88

155

172

172

164

Spain

66

97

111

136

167

Ireland

15

88

109

119

135

Italy

42

59

78

107

125

France

51

77

133

133

125

Sub-total

404

680

795

846

895

Netherlands

32

58

52

52

57

Greece

12

19

27

40

56

Russia

n/a

27

32

34

39

Austria

9

12

17

18

21

Poland

9

12

15

15

17

Portugal

5

8

10

12

17

Ukraine

11

11

11

12

16

Denmark

8

13

16

17

15

Sweden

7

15

14

13

13

Romania

1

3

5

6

11

Hungary

2

3

5

7

8

Turkey

7

10

10

8

8

Czech Republic

3

4

5

6

6

Norway

2

4

4

4

5

Slovakia

1

2

2

2

2

Finland

1

1

1

1

1

Total Europe

514

882

1,021

1,093

1,187

Sources: Company accounts, other public information, and PwC analysis
4

4
Market liquidity
High
Tier 2
Low market liquidity
High NPL level

Tier 1 (Liquid market with large NPL size)
This tier represents mature loan transaction
markets that are a main focus of international
investors. This tier includes UK, Spain, Ireland
and Germany. We expect these markets will
continue to be key non core asset markets in
2013/14.

Tier 1
High market liquidity
High NPL level

Germany

Spain

UK

Tier 2 (Illiquid market with large NPL size)
This tier includes France and Italy, two of the
largest European markets that remain relatively
illiquid considering the overall NPL levels.
French banks have been active in exiting their
overseas non core businesses in recent years but
have been relatively inactive domestically. In
Italy, loan transaction levels have been gradually
increasing after a long period of inactivity. We
expect these trends will continue in 2013/14.

Size of NPL

Ireland
Italy

France

Tier 3
Low market liquidity
Low NPL level

Greece

Netherlands

Nordic

CEE
Austria

Portugal

Turkey
Low

Transaction volume

High

Tier 3 (Illiquid markets with moderate NPL
size)
This tier includes moderate size markets with
relatively few non core asset transactions.
Greece and the Netherlands are the largest
markets in this tier with the highest level of
NPLs. We expect the two markets to become the
focus of investors over the next 12-24 months.

Note: Our index above rates the key European markets taking into consideration the overall size of NPLs in 2012, along with the cumulative level
of transactions over the period Jan 2010 to Aug 2013.
Source: PwC analysis
5
€46bn of loan portfolios have traded in first 8 months of 2013
CRE and unsecured retail remain the most actively traded asset class
€70

€70

€60

€40

€36bn

France €9bn

Belgium €11.5bn

Other €4bn

€30

Germany €7.5bn

€20
Ireland €15bn

€36bn
€30

Unsecured Retail
€9bn

€20

UK €9bn

€10

UK €10bn

€0

€0
2010

2011

2012

Source: Publicly available information, PwC information and analysis
Note: Based on the location of the head office of the bank selling the assets

Specialised €15.5bn

2013 8m

SME/Corporate €3bn

SME/Corporate €2.5bn

Unsecured Retail
€10bn

Unsecured Retail
€10bn

Secured Retail €3bn

Secured Retail €2bn

€11bn

UK €13bn
UK €8bn

SME/Corporate €1bn

Spain €8.5bn

Ireland €3bn

Other €3bn

Specialised €14bn

Specialised €6bn

Ireland €1.5bn

€11bn
€10

Spain €9bn

€46bn

Spain €4bn

€40

Secured Retail €6bn

Portugal €4bn
Germany €10bn

In progress €12bn

€46bn
Other €2bn
Netherlands €2bn

Face value (€bn)

Italy €4bn

PwC forecast €1bn

€50

€46bn
Other €1bn

€60bn+

€60

In progress €12bn

€50

Face value (€bn)

€60bn+
PwC forecast €1bn

€46bn

The uptake in volume in Belgium is
driven by the Fortis bad bank
transaction.

Specialised €4bn

CRE €18bn
CRE €13bn

SME/Corporate €2bn
Unsecured Retail €1bn
Secured Retail €1bn
CRE €3bn

2010

2011

2012

CRE €15bn

2013 8m

Note: “Specialised” includes certain structured and asset backed products, shipping, infrastructure,
energy and aviation exposures
6
2013 deals in key markets
Germany

UK
A number of large CRE loan portfolio sales took place
in German banks in 2013. This includes the sale of
€4.7bn of Eurohypo’s UK CRE loan portfolio, Deutsche
Bank’s sale of the €2.7bn US CRE loan portfolio and
the sale of Postbank’s €1.5bn UK CRE portfolio
currently close to completion.

€18

€16

€18

€16

€12

€10bn
€9bn+

€8

Specialised €5bn

In progress €1.5bn
Secured Retail €0.2bn

€6

Face value (€bn)

€14

€12

Face value (€bn)

€14

€10

CRE loan portfolios remain one of the most actively
traded class of assets in the UK. We have seen more
CRE loan portfolios transactions completed in the
first 8 months of 2013 and expect the transaction
volume to increase significantly over the remainder
of 2013.

€10bn
€10

€9bn

€8

CRE €7.5bn

In progress €4.5bn

Specialised €4bn

SME/Corporate €0.4bn
SME/Corporate €2bn

€7bn
Unsecured Retail €3bn

€6
Specialised €4bn

€17bn+

Specialised €1bn

SME/Corporate €0.4bn

Unsecured Retail €0.2bn

€4

A number of large unsecured portfolio sales have
contributed to the increase in unsecured retail
transaction volume.

Unsecured Retail €1bn
Secured Retail €0.2bn

Unsecured Retail €4bn

Secured Retail €0.5bn

€4

Secured Retail €0.6bn
CRE €6bn

CRE €5bn

€2

€0

<€1bn
2010

€2

CRE €5bn
CRE €4bn

Unsecured Retail €1bn

<€1bn
2011

SME/Corporate €2bn

2012

Source: Publicly available information, PwC information and analysis
Note: Based on the location of the head office of the bank selling the assets

2013 8m

€0

CRE €0.3bn

2010

2011

2012

2013 8m

Note: “Specialised” includes certain structured and asset backed products, shipping, infrastructure,
energy and aviation exposures
7
2013 deals in key markets
Ireland

Spain

€18

€18

€16

€15bn

€14

Specialised €2bn

Secured Retail €1bn

€12

Transaction volume in 2013 is expected to
exceed 2012. We expect that the potential
sale of IBRC's loan portfolios will
significantly increase the volume of
transactions during the rest of 2013 and
early 2014. We believe that corporate and
property backed loans (including land)
will continue to dominate the Irish market.

€10

€8

CRE €12bn

€6

€14

€12

Face value (€bn)

€16

Face value (€bn)

Unsecured retail continued to be the most
actively traded class in Spain, making up
€6bn of completed deals and the vast
majority of transactions in progress.

€10bn

€10

SME/Corporate €0.7bn

In progress €1bn

€8

SME/Corporate €0.4bn
Unsecured Retail €6bn

€6

€4bn

€4.5bn+
€4

€2

In progress €3bn

Unsecured Retail €4bn

€2

Secured Retail €3bn

Secured Retail €0.7bn

€0

<€1bn
2010

CRE €0.9bn

2011

2012

Source: Publicly available information, PwC information and analysis
Note: Based on the location of the head office of the bank selling the assets

Unsecured Retail €6bn

SME/Corporate €0.2bn

€4

€3bn
Specialised €0.5bn
SME/Corporate €0.3bn
Unsecured Retail €0.7bn

€9bn+

CRE €1.5bn

€0
2013 8m

<€1bn
2010

Secured Retail €2bn

Secured Retail €0.3bn
CRE €0.2bn

2011

2012

2013 8m

Note: “Specialised” includes certain structured and asset backed products, shipping, infrastructure,
energy and aviation exposures
The above analysis includes both completed and in progress deals as at the time of publication
8
European commercial real estate loans pricing trends
2012 and 2013 European CRE loan portfolio market pricing

Investor pricing expectations: European CRE

6.0

1

27%

3

5.0

Performing CRE

13%
14%

Face value (€bn)

4.0

2

3.0

50%
Non-performing CRE

2.0

63%
54%

1.0

0.0

0%
0-20

21-30

31-40

41-50

51-60

61-70

71-80

20%

1

9

In line with our 2013 investor survey, the majority
of non-performing European CRE assets were
priced at 41-50 c/€ range. Most of these portfolios
were secured by assets in the UK and Germany and
we have seen pricing varied widely depending on
the asset quality and specific property locations.

Publication Issue

60%

80%

Expected discount (c/€)

91-100

Market pricing (c/€) completed transactions in 2012 and 2013)
Source: Publicly available information, PwC analysis

40%

2011

2012

2013

Source: PwC Investor Survey 2013

2

Irish assets have generally attracted a lower price of
between 10-40 c/€, with prominent difference in
pricing between prime and non-prime properties.

3

Performing CRE assets were priced at a discount of
around 10%. This is in line with the findings of our
investor survey.

9
pwc.com

This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without
obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted
by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to
act, in reliance on the information contained in this publication or for any decision based on it. © 2013 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers
LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity.
130905-091946-ML-UK

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Etude PwC sur les portefeuilles de créances non performantes en Europe (2013)

  • 1. European Portfolio Advisory Group Market update October 2013 Click to launch
  • 3. European NPL outlook and transactions in key markets Welcome to our bi-annual market update. This short document covers our latest analysis of the level of non-performing loans around Europe, together with a quick round up of loan portfolio transactions. Richard Thompson Chairman, European Portfolio Advisory Group 3 Publication Issue Reported NPLs have continued to increase mainly driven by countries in Southern Europe (mainly Italy, Spain and Greece), along with Ireland. There are 6 countries, Germany, the UK, Spain, Ireland, Italy and France that are reporting NPLs in excess of €100bn in their banking system at the end of 2012 – a staggering total of nearly €900bn. With an uncertain economic climate it is difficult to forecast any meaningful reduction in aggregate across Europe and indeed we believe that reported NPLs in many countries will continue to rise over the next couple of years, adding further impetus to the already buoyant loan portfolio market. In calendar year 2012 we saw loan portfolios with a face value of €46bn trade, primarily originated from banks in the UK, Ireland, Spain and Germany and at the beginning of this calendar year we forecast an increasing volume of deals in 2013 – with a face value of €60bn. We have not been disappointed, with over €46bn transacted in the first 8 months with a further €12bn in the pipeline. Our expectations for the year are likely to be exceeded – indeed we are currently lead advising on deals totalling over €8bn which we expect to complete by end of the year. Price, of course, remains a much talked about issue when looking at the potential for transactions. Our latest survey of investor return requirements will be published in the next few weeks. This survey, covering expected buying behaviour, shows return requirements remaining largely unchanged over the last year – but there is fierce competition for deals and demand continues to outstrip supply. I hope you find this publication useful, and if you would like any further information please contact me or one of my colleagues listed at the end of this document. These transactions are set against the backdrop of a continuing significant deleveraging challenge facing many of Europe’s largest banks – the majority of the top 50 having established non-core or equivalent divisions, comprising both performing and non-performing lending, with the objective of achieving an increased focus on selling or running down unwanted assets. 3
  • 4. NPL by country 2008–2012 In billions EUR 2008 2009 2010 2011 2012 Germany 142 204 192 179 179 United Kingdom 88 155 172 172 164 Spain 66 97 111 136 167 Ireland 15 88 109 119 135 Italy 42 59 78 107 125 France 51 77 133 133 125 Sub-total 404 680 795 846 895 Netherlands 32 58 52 52 57 Greece 12 19 27 40 56 Russia n/a 27 32 34 39 Austria 9 12 17 18 21 Poland 9 12 15 15 17 Portugal 5 8 10 12 17 Ukraine 11 11 11 12 16 Denmark 8 13 16 17 15 Sweden 7 15 14 13 13 Romania 1 3 5 6 11 Hungary 2 3 5 7 8 Turkey 7 10 10 8 8 Czech Republic 3 4 5 6 6 Norway 2 4 4 4 5 Slovakia 1 2 2 2 2 Finland 1 1 1 1 1 Total Europe 514 882 1,021 1,093 1,187 Sources: Company accounts, other public information, and PwC analysis 4 4
  • 5. Market liquidity High Tier 2 Low market liquidity High NPL level Tier 1 (Liquid market with large NPL size) This tier represents mature loan transaction markets that are a main focus of international investors. This tier includes UK, Spain, Ireland and Germany. We expect these markets will continue to be key non core asset markets in 2013/14. Tier 1 High market liquidity High NPL level Germany Spain UK Tier 2 (Illiquid market with large NPL size) This tier includes France and Italy, two of the largest European markets that remain relatively illiquid considering the overall NPL levels. French banks have been active in exiting their overseas non core businesses in recent years but have been relatively inactive domestically. In Italy, loan transaction levels have been gradually increasing after a long period of inactivity. We expect these trends will continue in 2013/14. Size of NPL Ireland Italy France Tier 3 Low market liquidity Low NPL level Greece Netherlands Nordic CEE Austria Portugal Turkey Low Transaction volume High Tier 3 (Illiquid markets with moderate NPL size) This tier includes moderate size markets with relatively few non core asset transactions. Greece and the Netherlands are the largest markets in this tier with the highest level of NPLs. We expect the two markets to become the focus of investors over the next 12-24 months. Note: Our index above rates the key European markets taking into consideration the overall size of NPLs in 2012, along with the cumulative level of transactions over the period Jan 2010 to Aug 2013. Source: PwC analysis 5
  • 6. €46bn of loan portfolios have traded in first 8 months of 2013 CRE and unsecured retail remain the most actively traded asset class €70 €70 €60 €40 €36bn France €9bn Belgium €11.5bn Other €4bn €30 Germany €7.5bn €20 Ireland €15bn €36bn €30 Unsecured Retail €9bn €20 UK €9bn €10 UK €10bn €0 €0 2010 2011 2012 Source: Publicly available information, PwC information and analysis Note: Based on the location of the head office of the bank selling the assets Specialised €15.5bn 2013 8m SME/Corporate €3bn SME/Corporate €2.5bn Unsecured Retail €10bn Unsecured Retail €10bn Secured Retail €3bn Secured Retail €2bn €11bn UK €13bn UK €8bn SME/Corporate €1bn Spain €8.5bn Ireland €3bn Other €3bn Specialised €14bn Specialised €6bn Ireland €1.5bn €11bn €10 Spain €9bn €46bn Spain €4bn €40 Secured Retail €6bn Portugal €4bn Germany €10bn In progress €12bn €46bn Other €2bn Netherlands €2bn Face value (€bn) Italy €4bn PwC forecast €1bn €50 €46bn Other €1bn €60bn+ €60 In progress €12bn €50 Face value (€bn) €60bn+ PwC forecast €1bn €46bn The uptake in volume in Belgium is driven by the Fortis bad bank transaction. Specialised €4bn CRE €18bn CRE €13bn SME/Corporate €2bn Unsecured Retail €1bn Secured Retail €1bn CRE €3bn 2010 2011 2012 CRE €15bn 2013 8m Note: “Specialised” includes certain structured and asset backed products, shipping, infrastructure, energy and aviation exposures 6
  • 7. 2013 deals in key markets Germany UK A number of large CRE loan portfolio sales took place in German banks in 2013. This includes the sale of €4.7bn of Eurohypo’s UK CRE loan portfolio, Deutsche Bank’s sale of the €2.7bn US CRE loan portfolio and the sale of Postbank’s €1.5bn UK CRE portfolio currently close to completion. €18 €16 €18 €16 €12 €10bn €9bn+ €8 Specialised €5bn In progress €1.5bn Secured Retail €0.2bn €6 Face value (€bn) €14 €12 Face value (€bn) €14 €10 CRE loan portfolios remain one of the most actively traded class of assets in the UK. We have seen more CRE loan portfolios transactions completed in the first 8 months of 2013 and expect the transaction volume to increase significantly over the remainder of 2013. €10bn €10 €9bn €8 CRE €7.5bn In progress €4.5bn Specialised €4bn SME/Corporate €0.4bn SME/Corporate €2bn €7bn Unsecured Retail €3bn €6 Specialised €4bn €17bn+ Specialised €1bn SME/Corporate €0.4bn Unsecured Retail €0.2bn €4 A number of large unsecured portfolio sales have contributed to the increase in unsecured retail transaction volume. Unsecured Retail €1bn Secured Retail €0.2bn Unsecured Retail €4bn Secured Retail €0.5bn €4 Secured Retail €0.6bn CRE €6bn CRE €5bn €2 €0 <€1bn 2010 €2 CRE €5bn CRE €4bn Unsecured Retail €1bn <€1bn 2011 SME/Corporate €2bn 2012 Source: Publicly available information, PwC information and analysis Note: Based on the location of the head office of the bank selling the assets 2013 8m €0 CRE €0.3bn 2010 2011 2012 2013 8m Note: “Specialised” includes certain structured and asset backed products, shipping, infrastructure, energy and aviation exposures 7
  • 8. 2013 deals in key markets Ireland Spain €18 €18 €16 €15bn €14 Specialised €2bn Secured Retail €1bn €12 Transaction volume in 2013 is expected to exceed 2012. We expect that the potential sale of IBRC's loan portfolios will significantly increase the volume of transactions during the rest of 2013 and early 2014. We believe that corporate and property backed loans (including land) will continue to dominate the Irish market. €10 €8 CRE €12bn €6 €14 €12 Face value (€bn) €16 Face value (€bn) Unsecured retail continued to be the most actively traded class in Spain, making up €6bn of completed deals and the vast majority of transactions in progress. €10bn €10 SME/Corporate €0.7bn In progress €1bn €8 SME/Corporate €0.4bn Unsecured Retail €6bn €6 €4bn €4.5bn+ €4 €2 In progress €3bn Unsecured Retail €4bn €2 Secured Retail €3bn Secured Retail €0.7bn €0 <€1bn 2010 CRE €0.9bn 2011 2012 Source: Publicly available information, PwC information and analysis Note: Based on the location of the head office of the bank selling the assets Unsecured Retail €6bn SME/Corporate €0.2bn €4 €3bn Specialised €0.5bn SME/Corporate €0.3bn Unsecured Retail €0.7bn €9bn+ CRE €1.5bn €0 2013 8m <€1bn 2010 Secured Retail €2bn Secured Retail €0.3bn CRE €0.2bn 2011 2012 2013 8m Note: “Specialised” includes certain structured and asset backed products, shipping, infrastructure, energy and aviation exposures The above analysis includes both completed and in progress deals as at the time of publication 8
  • 9. European commercial real estate loans pricing trends 2012 and 2013 European CRE loan portfolio market pricing Investor pricing expectations: European CRE 6.0 1 27% 3 5.0 Performing CRE 13% 14% Face value (€bn) 4.0 2 3.0 50% Non-performing CRE 2.0 63% 54% 1.0 0.0 0% 0-20 21-30 31-40 41-50 51-60 61-70 71-80 20% 1 9 In line with our 2013 investor survey, the majority of non-performing European CRE assets were priced at 41-50 c/€ range. Most of these portfolios were secured by assets in the UK and Germany and we have seen pricing varied widely depending on the asset quality and specific property locations. Publication Issue 60% 80% Expected discount (c/€) 91-100 Market pricing (c/€) completed transactions in 2012 and 2013) Source: Publicly available information, PwC analysis 40% 2011 2012 2013 Source: PwC Investor Survey 2013 2 Irish assets have generally attracted a lower price of between 10-40 c/€, with prominent difference in pricing between prime and non-prime properties. 3 Performing CRE assets were priced at a discount of around 10%. This is in line with the findings of our investor survey. 9
  • 10. pwc.com This publication has been prepared for general guidance on matters of interest only, and does not constitute professional advice. You should not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law, PricewaterhouseCoopers LLP, its members, employees and agents do not accept or assume any liability, responsibility or duty of care for any consequences of you or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it. © 2013 PricewaterhouseCoopers LLP. All rights reserved. In this document, “PwC” refers to PricewaterhouseCoopers LLP (a limited liability partnership in the United Kingdom) which is a member firm of PricewaterhouseCoopers International Limited, each member firm of which is a separate legal entity. 130905-091946-ML-UK