Bad bank’s planned sale of servicer handling €119bn of former HRE non-performing loans is expected to herald loan sales in Germany and beyond
FMS Wertmanagement, Germany’s largest bad bank, has put its loan servicing unit up for sale. The sale of the business, which manages €119bn of non-core loans from the former Hypo Real Estate, is leading to speculation that non-performing loan portfolio sales will finally follow, four years after the bad bank was set up.
“Things are heating up in Germany; it’s a very exciting time,” said one head of a business that deals with non-performing loans. “Once they start to sell, banks have to provision, then liquidity and deals follow. Expect lots of activity by Q1 next year.”
FMS’s website said it is seeking bids for its loan servicer by 2 June. Previously the portfolio was serviced by the HRE Group, which oversees ‘good’ bank pbb Deutsche Pfandbriefbank, and which was required under the terms of its bail-out to end all co-operation with FMS by last October.
The sale is the outcome of a subsequent review by the FMS board after “discussing the issue of how and by whom the services required to fulfil its wind-up mission could be provided”. European NPL sales are expected to increase not just in German real estate, but across loan asset classes and in jurisdictions yet to see as many deals as the UK, Ireland and Spain.
A key factor driving the rise in sales is the European Central Bank’s ‘health check’ of 128 European banks’ assets, the asset quality review, and stress tests. Italy’s banks top the list of lenders scrambling to clean up their balance sheets. Last week US private equity group KKR and restructuring adviser Alvarez & Marsal confirmed that they are teaming up with UniCredit and Intesa Sanpaolo to launch a vehicle to work out bad loans from both banks.
In a statement, they said they aim to “implement an innovative solution to optimise performance and maximise the value of a selected corporate loan portfolio under restructuring through proactive management and additional funding at asset level”.
A memorandum of understanding has been signed, and while details are sketchy, it is thought the vehicle will be similar to RBS’s Isobel joint venture with Blackstone in the UK, and that each lender will put in around €1bn of loans to borrowers they have in common.
UniCredit is cleaning up its balance sheet and has set up an internal “bad bank”, with €87bn of assets, two-thirds of them non-performing. Meanwhile, Italian property specialist Prelios (formerly Pirelli) and Fortress are jointly bidding for a majority stake in UniCredit Credit Management Bank, the lender’s special servicer, possibly with a €4bn NPL portfolio. UCMB manages €40bn of Italian loans, not just UniCredit’s. Cerberus-Jupiter and Goldman Sachs-Deutsche Bank are also reported to be bidders.
Prelios Credit Servicing and Fortress are also joint bidders for Banco Populare bad bank Release. Federico Montero, a partner at Cushman & Wakefield Corporate Finance, said UK and Irish deals have dominated the record €30bn of CRE loan sales so far this year, “but we expect activity in Spain, Germany, the Netherlands and Italy to increase dramatically throughout the year”.