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Valentina the
MILAN (Reuters) – Europe’s debt collectors have gone from revelry to famine as bank loan failures worsen.
Companies that recovered unpaid bank debt and grew in the aftermath of the euro area sovereign debt crisis are rethinking their business models in the wake of COVID-19, the energy crisis and the collapse of two decades of high interest rates. We are considering a partnership. Causing a new wave of loan defaults.
Southern Europe’s banks are nearly complete with a cleanup that once produced a bumper crop of bad loans that drew in foreign investment firms such as Apollo, Cerberus, PIMCO, Elliott and Lone Star, as government support measures help businesses and households get back on their feet. It is useful for . Non-performing loans (NPLs) accounted for 1.8% of total bank lending in Europe for the sixth consecutive quarter, according to official data.
In Italy, the continent’s biggest bad debt market, sales totaled 31 billion euros ($34 billion) last year, one-third of their 2018 peak. At the time, virtually all disposals were from banks, but more than half of the total in 2023 was resale.
Shares in major companies on the continent, including Sweden’s Intram, Europe’s largest debt collector, and Italian leader Duvalu, have fallen this month as investors consider whether restructuring efforts will be successful. The lowest value was recorded. Both companies declined to comment.
“Some players are undergoing a transformation,” said Francesco Cataldo, director of consultancy PwC Strategy & in Milan.
It is important that loan administrators remain active, as they can breathe new life into assets (in some cases businesses and real estate) that are tied up in bankruptcy or restructuring proceedings, helping to support economic growth.
Rising cost of debt, decreasing flow of non-performing loans
Many servicers have not only stopped purchasing new impaired loans, but also sold off previously purchased assets because the cost of debt has made them economically unviable.
Intram’s share price has fallen 78% since the start of the year, and in January it sold its nominal 33 billion euro loan portfolio to Cerberus, taking over management of the loans and using the cash to reduce debt that was recently downgraded. You are working with an advisor to improve your debt situation.
Similarly, Italy’s Mediobanca exited its bad debt investment business in October, selling off a unit with a nominal 6.5 billion euros in bad debts.
Intrum’s “capital light” model was adopted last week when Italy’s state-run bad debt management company AMCO announced a new three-year strategy, saying it would reduce managed loans and bring financial debt to zero.
“Banks’ impaired loan levels are minimal and capital buffers are high,” AMCO said, adding that new non-performing loans are expected to rise as companies must comply with new European Union regulations by mid-2024. He pointed out that the flow of receivables has declined structurally and competition in this field has intensified.
Banks’ strong loan balances also pose a threat to collection agencies, which do not invest directly in bad loans and instead rely on contracts with lenders to outsource debt collection. Multi-year contracts may not be renewed as they expire gradually.
Italy’s Duvalu, which is backed by Japan’s SoftBank Group and whose key UniCredit contract ends in 2025, is expected to outline alternative sources of revenue when it unveils a new strategy on Thursday.
The company’s stock price has fallen 47% this year after it booked a loss in 2023 on impairment charges on its Spanish business, which lost a major contract in 2022.
M&A revitalization
In a crowded market, mergers are an obvious way for debt collectors to reduce competition and increase scale.
But investment bankers argue that the poor performance of listed distressed-loan firms makes valuations unattractive for sellers.
Several deals have been considered, but none have closed in recent years, and the diversity of business models makes it difficult to set a price that would be similar to a sale of a debt collection company acquired by a major investment fund during boom times, the bank said. officials said.
Hopes for an M&A revival now rest on fintech group ION’s €1.3 billion acquisition of Italian loan manager Prelios from US hedge fund Davidson Kempner.
Prelios, valued at about nine times core earnings, could serve as a benchmark for future deals, according to two industry sources.
ION received government approval to buy Prerios this month and now needs approval from the central bank. It will then merge Cerved and Prelios, another distressed debt business it acquired in 2021.
Italian authorities are concerned about problems in the sector, which is key to banks’ billions of euros in loans, according to people familiar with their thinking.
Cataldo said: “Although the inflow of new non-performing loans is low, we must not forget that a large part of the problem debt of around 250 billion euros still exists in Italy alone. There are businesses and families that remain unresolved.”
(1 dollar = 0.9144 euro)
(Reporting by Valentina Za; Editing by Tommy Reggiori Wilkes and Mark Potter)
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