June 21, 2017
Stephen Day comments in CapitalStructure on the potential use of securitisation for the relief of European banks’ balance sheets from troubled loans.
An excerpt from "Greek NPL Securitisation May Be a One-off, But Outlook for European NPL ABS Remains Optimistic," CapitalStructure, June 21, 2017:
According to Stephen Day, partner at Cadwalader, Wickersham & Taft, interest has picked up recently in peripheral jurisdictions such as Greece and Portugal. “Previously the investor appetite wasn’t strong for these exposures, but following various legal reforms in Greece some institutions may now consider it,” he said. “Whether the activity translates to real action remains to be seen.”
Mr. Day added that one of the more perverse outcomes from the legal reforms may have encouraged banks to work out their own loans, rather than transfer them to distressed investors that partner with licensed special servicers. “The wide bid/ask differential on portfolios is particularly acute in Greece,” he said. “That gives another reason for potential sellers to work out NPLs themselves.”
Mr. Day suggests there could be more securitisations to come backed by portfolios of NPLs, but much depends on the portfolio composition, the strength of the originator and incentives to securitise. He also pointed to Portugal as being a natural contender for NPL ABS given the success of Spain’s deleveraging programme and the exposures of Spanish banks active in Portugal, while Italy also will remain very active.
Germany could also be a contender for NPL securitisations, said Mr. Day, as incoming accounting and regulatory capital changes could incentivise German banks to resolve NPL portfolios.