Specialization and Concentration as main drivers

Unipol engaged 2 transactions with BPER involving

  • Sale of the entire shareholding in Unipol Banca to BPER Banca for €220m in cash 
  • Purchase by UnipolRec of a portfolio of the BPER Banca Group non-performing loans wth a gross value of 1.3€bn for a payment of €130m

This is quite representative of the most relevant trends that are going to shape Italian banking system and NPL market in 2019, after the significant volumes exchanged in 2018, above 100Bn according the latest report of Credit Village NPL observatory. 

We see that non core operations are being disposed as well as and sometimes together with NPE Portfolios as seen in Banco BPM – Eliott deal and Intesa Sanpaolo- Intrum JV  in recent months and previously in Unicredit – Fortress deal (project FINO). 

Rumors on additional deal are quite recurring in these days and it is quite likely to see more of this kind of JV transaction later on these year.

On the other hand we also seeing larger quantities of distressed assets being transferred under management of specialized players acting on behalf of investors as well as of banks.

  • Cattura.JPG

The servicing market analyses provided by Banca Ifis in its latest market watch shows strong concentration in the management of the assets disposed between 2015-28.

Looking at servicing market including both assets sold and remained on banks’ balance sheet we see that the top 3 special servicers accounts for some 62% of total market

Sp ServicerNPE AUMMkt Share
doBank82.331%
Cerved41.316%
Tersia41.816%

Sources: dobank and Cerved AUM as of 30 June 2018 from PWC’Italian NPL Market ;Tersia AUM from press release(10.8bn sold by Intesa +30bn formerly under management by its servicing platform).

The lower burden of bad debts on Italian banks is also expected to boost M&A process.

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Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

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Italian banks and NPL Update 2019-02

Italy’s economy tipped into recession at the end of last year, according to latest figures. In the final three months of 2018, the economy shrank by 0.2%, following a 0.1% decline in the third quarter, according to the latest update published by ISTAT.

Source: The Economist

ECB has asked Italian (as well as the other EU) Banks to  make a full provision for its bad debts, not only for the new ones, as stated in March guidelines, but also for the outstanding stock.

This may be a significant incentive to continue the large the NPL disposal process that has led to some 132-137Bn GBV transactions in 2017-18.

A substantial pipeline is also expected for 2019 where already announced deals are worth some 30Bn on primary market and 20Bn on secondary one as reported by the last Banca IFIS Market Whatch

After a 2018 mostly driven by SGA acquisition of Venete Banks legacy,
Unlikely To Pay exposures (UTP) market is also expected to be quite valuable in 2019.

GACs Scheme is due to expire in March 2019 even though an extension is deemed possible (already happened twice) and rumors of a potential amendment to include UTP are circulating since a while.

Regulatory framework has also seen quite relevant updates in the last 12 months as effectively summarized by Ernst& Young “The Italian NPEs market

The most relevant challenges will come from NPEs calendar provisioning as a result of the combined action of ECB Addendum and Trilogue Agreement.

The first one is not a set of binding rules but a s: supervisory expectations for prudential provisioning. The second is a legislative proposal, subject to endorsement by EU ambassadors and adoption by the EU Council and the EU Parliament.

Figure 2.4 provides a direct comparison between the latest minimum common coverage factors required to banks by the Trilogue (as part of the ongoing process to amend the CRR) and by the ECB.

M&A activity is also expected to increase during 2019 in order to reduce the number of players in Italian banking system to better comply with regulators’expectations and to face the emerging competition of challeger banks.

#Savethedate I will be speaking at the IMN 2nd Annual Investors’ Conference on Greek and Cypriot NPLs.

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Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

To get further updates Join the Linkedin Group – Entering Italian NPL Market  and follow #Liberi Di Scegliere via @blastingnews

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#Savethedate Feb 8 2019 – IMN Conference in Greece

I am proud to be speaking at the IMN 2nd Annual Investors’ Conference on Greek and Cypriot NPLs. This year title will be “Establishing a Secondary Market”.

The event will take place in Athens on 8 February 2019.

In the panel on Improving NPL Liquidity: The Role of Government Guarantee Schemes and the Creation of a “Bad Bank” Michael Haralabidis, Chief Risk Officer, Hellenic Financial Stability Fund, Mario Cortesi,Head of Distressed Credit, Quaestio Capital Management and myself will address the following questions:

  • Has the NPL Law provided the necessary framework for a robust secondary loan market or has it created additional unintended impediments?
  • Would a scheme similar to that of Italy’s “GACS” programme work in Greece? Why or why not?
  • Would a government backed scheme aid in attracting a larger and more diverse investor base?  
  • What structural reforms are still needed to foster a healthy secondary NPL market? 
  • How might political instability further dampen market liquidity? Will the government continue to support the market?

Link to the Full Agenda

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Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

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GLG – Gerson Lehrman Group – Council Member

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Banco BPM selected Credito Fondiario and Elliott for its NPL disposal

Banco BPM approved the binding offer submitted by Elliott International, L.P. (“Elliott”) and Credito Fondiario S.p.A. (“CF”), one of the consortia selected as potential investors for the the last phase of the disposal process regarding a portfolio of bad loans (Project “ACE”). 

The binding agreement reached includes the signing of a framework agreement for the disposalof a eur 7.8 billion bad loans portfolio and the establishment of a dedicated npl servicing partnership with a Credito Fondiario a specialized bank in NPL management.

Link to the full press release

Within this transaction the servicing platform of the Bank has been evaluated approximately Eur 143 million. 

 The final price of the portfolio will be determined on the basis of

  1. the final size of the portfolio,
  2.  the access to the GACS scheme and  
  3. the feedback which will be provided by the Rating Agencies in relation to the maximum amount of the senior notes which may benefit of an Investment Grade Rating;

Do you like these updates? subscribe my newsletter 

Are you interested in Italian banks and NPL/UTP market? Ask for a briefing  (in person or via conference call) by sending me a private message. I am also available for consulting projects on Distressed Assets pricing and Portfolio Management.

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T6 Next event on Foreclosures

#Savethedate – Rome 3 December 2018 – T6 Association is going to held its annual event on Foreclosures and Real Estate.

ASSOCIAZIONE T.S.E.I. – stands for  “Tavolo di Studio sulle Esecuzioni Italiane” and is a think thank working on the assessment of efficiency and efficacy of Italian legal system with a focus on different timing of foreclosures across italian Courts.

A special report on Courts Timing will be presented during the event.

This year I am going to chair a panel on UTP (Unlikely To Pay) Exposures. The discussion will be introduced by a speech of Paolo Angelini – Vice Capo del Dipartimento Vigilanza bancaria e finanziaria, Banca d’Italia.

The panelists will be:

  • Angelo Peppetti – Ufficio Crediti, ABI ,
  • Guido Lombardo – Chief Investment Officer, Credito Fondiario,
  • Fabio Pettirossi – Responsabile Direzione UTP/PD, S.G.A.
  • Andrea Battisti, Head of NPL Operations & Recovery, BIP/illimity

Link to Register 

Event Website

Event Flyer

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Italian NPL Update 2018-10

Hoist Finance has entered into an agreement to lease and subsequently acquire the business going concern of the Italian debt collection companies Maran S.p.A. and R&S S.rl. (“Maran Group”) in a multistep process, in the context of their composition with creditors (concordato preventivo) pursuant to Italian Insolvency Law (press release). The same investor is also acquiring a 150m NPL portfolio by Banca Patavina.

Banca Interprovinciale S.p.A., currently a subsidiary of SPAXS Spa that will become Illimity  has finalized the acquisition of

  • a portfolio of non-performing loans with a gross book value of Euro 155 million, sold by Cassa di Risparmio di Volterra and largely composed by corporate positions secured mostly by commercial and industrial assets, with an average value per position of €250,000.
  • a portfolio of non-performing loans with a gross book value of Euro 263 million acquired in an off-market transaction on the secondary market from Istituto Finanziario del Mezzogiorno S.p.A.. It is a banking portfolio and largely consists of corporate positions, of which 30% secured, with an expected return in line with the bank’s strategic plan.

Banca IFIS and SGA have signed a notification agreement aimed at facilitating SGA customer access to Banca IFIS factoring services. Above all, this initiative is intended for small and medium enterprises with exposures with SGA classified as unlikely to pay or as past due.

CARIGE is formalising the agreement with Bain Capital Credit LP for the disposal of a UTP portfolio of up to EUR 400 million in Gross Book Value, within the framework of the exclusive negotiations announced on 7 August 2018, which will allow the Bank to bring the NPE amount below the ECB’s end-2018 target of EUR 4.6 billion.

In September, IFIS NPL acquired from UniCredit, Deutsche Bank Group and one of the leading Italian consumer credit companies three portfolios of distressed loans for a total of € 1.26 billion (nominal value) corresponding to more than 70,700 positions.

MBCredit Solutions has signed an agreement to acquire four portfolios of unsecured non-performing loans with a nominal value of €665.3m, consisting of more than 40.000 positions acquired on both the primary and secondary market:

Phoenix Asset Management is going to manage a further 225m secured NPL Portfolio acquired by AnaCap and sold by Volksbank and Banca di Pisa e Fornacette.

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#Savethedate the 12th CV DAY is coming on 21st November at Crowne Plaza Milan Linate.  Click here to register.

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Will Italian politics harm NPL market?

Italian government’s plan to  run fiscal deficit of 2.4% of GDP next year is causing some worries on financial markets (with pressure on the spread between of Italian long term public bond vs German ones commonly used as benchmark) because it threatens long terms sustainability of Public Debt/ GDP ratio (currently above 130%)  and may trigger a downgrade by Rating Agencies.

May this affect Italian NPL Market?

Exported.Chart

(Spread BTP- Bund during last year)

The most immediate effect of this policies is to increase the risk premium required to invest in Italy with a consequent downward pressure on public bonds and stock prices.  Italian banks  hold large amount of public debt, 370Bn€ or 10% of their assets according the Economist, and the mark to market of these securities is going to cause large capital losses.

In near future we can expect a worsening of macroeconomic imbalances  currently affecting Italy with the increasing risk that, should the rating fall below investment grade (actual level is 2 notches above junk bonds with negative outlook), the country may find not only more expensive, but also more difficult to rise funds on capital markets.

This will probably affect Italian NPL market  only to a limited extent because:

  • in Italian market is largely prevalent the “Private Equity approach” where not only asset portfolios but also servicing platform have been acquired by foreign players – this kind of investments (doBank, Intrum-Intesa) once started would hardly be influenced by worsened macroeconomic conditions
  • risk premium increase does not matter for Italian players (IFIS, MB Credit Solutions) and has reduced impact of local subsidiary of European players (Arrow, Kruk, Hoist, Axactor) furthermore there is an increasing number of NPL buyers with a banking license (Illimity, Guber) that will raise funds to invest locally
  • since NPL are illiquid assets (like real estates) they tend to react to Macroeconomic shocks with a slower pace

A negative contribution to the volume of NPL on sale may come from the reduction of capital base that banks can use to finance increase in provisions and loss coming from NPL sales. Nevertheless GACs facility to incentive securitization recently prolonged may help to reduce this effect and there are rumors of an extension to Unlikely to Pay claims.

Finally, special and master servicing market is expected to growth due to increasing pressures of new regulation (e.g. ECB Guidelines on calendar provisioning) and Macroreconomic imbalances that currently  threaten banks’ stability may provide an interesting opportunity  for credit management firms.

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GLG – Gerson Lehrman Group – Council Member

 

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