An (almost) Global Perspective on Distressed Assets

Transcription

1 An (almost) Global Perspective on Distressed Assets RMA Conference November 2013 Alexander Holzgreve Global Head of Investments

2 About Aktiv Kapital

3 Aktiv Kapital Background A leading investor in distressed consumer debt Investment company focused on consumer debt and distressed situations 4 employees in 8 countries, headquarters in Norway More than 20 years of experience and 20 debt portfolios with face value in excess of EUR 20bn Mixed servicing model, both in-house and outsourced Page 3

4 Observations across our markets

5 I. As regulators introduce more requirements 1988 Basel I International Rules for capital measurement and capital requirements 24 Basel 2 Framework revision and amendments to Basel I CRD 1 (Capital Requirements Directive) EU adopted rules based on Basel II CRD 2 Financial soundness of banks and investment firms (large exposures, liquidity risk mgmt & sec.products) Basel 2.5 / CRD 3 Capital requirements for trading book, re-securitisations, supervisory review of remuneration EBA requirements Core Tier 1 capital requirement of 9% after setting addtl capital buffer for sovereign risk Basel 3 / CRD IV New requirements for capital, liquidity and leverage etc. Liikanen Report Separation of investment banking activities Basel 3 requirements to be applied Page 5

6 I. FIs apply new risk management 8 Determine Probability of Default 8 10 Monitor & manage exposures Interpret data Think about risk Develop portfolio strategies Optimise Economic Profit 18 Page 6

7 II. Tough future for retail banking 1/2 Estimated profitability impact of new regulations on retail banking in Europe Source: McKinsey & Company - 30% - 48% - 46% - 39% Page 7

8 II. Tough future for retail banking 2/2 Loss in customer confidence LIBOR scandal Tax evasion cases Mis-selling claims over investments/financing Specialised consumer lenders moving from sub-prime to better risk rated customers Retreating banks are leaving money behind Less regulated financing space Lean operating model (internet banking & outsourcing of admin functions) provides cost advantage Page 8

9 IV. How banks react Review Risk Weighted Assets Refine BIS II models & approach Dispose of RWA-heavy assets and partial/entire business lines, e.g. Reduction of non-performing loans Reject new and reduce existing high risk rated retail customers Creation of special units to dispose/run-down distressed and non-core assets Improve profitability amid competitive market environment Wind-down cost intensive operations Strong focus on early collections Page 9

10 V. Different levels of sophistication Examples Small retail banks Banks with large backlog of NPL Local consumer finance Banks with flexible collection process High street UK banks Large retail banks Int l consumer finance Ad-hoc sale Mainly p/l driven Opportunistic Basic sale process; larger transactions with sell-side advisor Old or low quality product Regular sale Means to manage NPL levels Panel of qualified buyers Proven sale process Mostly 1.5yr+ aged accounts of all asset classes, but fresher exceptions possible Integrated sale Sale price/results impacting EL models Panel of qualified buyers Strict compliance with sale processes (process wins over price) Multi-product sales with predefined customer and/or product segment bids requested Page 10

11 Distressed & non-core deal volume at record high EUR bn In progress, 12 In progress Specialised, 6 Unsecured Retail 9 Secured Retail, 2 Specialised, 14 Specialised, 15.5 Unsecured Retail 10 Unsecured Retail 10 Secured Retail, 6 Secured Retail, 3 Specialised SME/Corporate Unsecured Retail Secured Retail CRE 10 0 Specialised, 4 CRE, 18 Unsecured Retail CRE, 13 CRE, 15 Secured 1Retail, 1 CRE, m Source: PwC market update 2013 Page 11

12 but is it to last? Eurozone Non-Performing Bank Loans Eurozone Banks performance forecast Page 12

13 Impact on distressed consumer asset sales

14 Liquidity provides for more competition Existing players raise funds Bond issuance IPO Private equity Credit financing Unsecured consumer NPL New Players entering unsecured market Less product and returns in core segments Advertising by sellside advisors Optimistic outlook by servicing partners Longer investment horizon Page 14

15 Deal flow is high when affordable or required Ad-hoc sale Price development: % YoY Stricter write-off rules Spreads have narrowed Significant NPL volume available Chunky one-off deals, large enough to attract opportunity funds Signs of economy bottoming out Advisors have helped professionalise sale processes Page 15 Integrated sale Price development: % YoY Strict compliance rules for banks and mandated DCAs/buyers High entry barriers, but well established professional players both in multiple and specialised segments Lower volume deals, but very regular and only to approved panel

16 Complex needs have to be addressed case study Situation: A medium sized bank was struggling to manage a complex hybrid portfolio while also facing cost pressures Solution: A complex EUR 2+m transaction which maximised value, reduced risk and found a solution to the platform The Client: 4,0 employees 5 branches EUR 40bn balance sheet volume ROE of 7% and under pressure The Challenge: Need to reduce cost/income ratio ideally offload NPL assets and collection platform together Reputational concerns given media sensitivity of selling secured loans The NPL portfolio: Mixed portfolio of real estate secured and unsecured personal and corporate loans comprising ca. EUR 330mn face value Outdated property values and data inconsistency The Platform 17 people EUR 2+m deal that addressed the needs of all stakeholders True sale with undisclosed assignment Transparent valuation of portfolios (secured/ unsecured) using 3rd party advisors and AK market/servicing experience Profit share formula to bridge valuation differences and provide flexibility Use of service-to-buy structure achieving deferred disposal/acquisition Forward Flow agreement for future nonperforming loans with pre-fixed pricing to manage P&L impact Page 16

17 Summary Current market environment and capital requirements will drive more debt to the market Complex and large deals have become more frequent, supporting short-term consolidation requirements and longterm strategies Debt sale is in full evolution for sellers: from ad-hoc, warehouse-only sales to selling the right portfolio at the right time for the right price; Debt buyers become more advanced: flexibility and execution power complement price and reputation as key drivers in transactions Page 17

18 Thank you!