European distressed debt investing has room for growth

Office buildings1Investors hold an estimated €65 billion which they are able to invest in loan assets from European banks that are deleveraging portfolios.

PwC, an accounting firm, says non-core loan portfolios with a face value of some €50 billion are expected to be sold by the end of this year.

The firm, in its latest European Outlook for non-core and non-performing loan portfolios, also says that total European non-core loan assets now stand at €2.5 trillion, of which €1 trillion are non-performing loans. The figure is up 10% over the last year.

Spain, Ireland and Italy saw the biggest increases, while Germany and the UK saw no further increases as asset quality stabilised.

Europe’s leading banks disposed of €27 billion of non-core loan assets during the first six months of 2012 which nearly matches total sales during the whole of 2011. However, even with this increasing transactional activity, PwC said the size of the transactions relative to the total volume of their non-core and non-performing loans portfolios suggested the deleveraging process is likely to be a protracted one.

Richard Thompson, European portfolio advisory group partner at PwC, said: “The European deleveraging process is still at a very early stage. The golden age of distressed debt investing is not yet upon us, but we strongly believe the market has significant room for growth.”

©2012 Funds Europe