Spanish bank Santander had entered into talks with Morgan Stanley in February over selling 1,000-plus mainly residential loans and assets, but talks terminated a few weeks ago.
It is understood that talks faltered not because of Spain’s economic woes as has been reported, but because the two parties were unable to agree a deal, sources said.
The deal collapse is just one of a number in which private equity real estate firms have been unable to see eye-to-eye with vendors over property loan sales in Europe.
Indeed, as PERE reported on Tuesday, investors have grown critical of the way some banks and financial institutions are handling the sale of portfolios.
Having polled more than 50 clients with €150 billion of funds under management, the US loan sale advisor DebtX said in a white paper on the subject, that investors participating in an auction or other sale structures were often critical of sellers, saying the institutions concerned entered the process with “unrealistic expectations”.
In interviews, investors frequently cited examples of banks not selling at the end of lengthy and expensive due diligence processes even when often multiple bids were received. “From the investors’ perspective, if an auction validates a market price, it is unacceptable that the seller does not execute the sale,” said DebtX.
In the case of Santander, the portfolio reportedly began life as a pool of loans with a face value of €3 billion and carrying a discount of more than 60 percent. However, the size of the portfolio reduced to around €700 million as talks focussed on a smaller portfolio with Morgan Stanley.
Mismatched price expectations and also the level of discounts that a bank can take without significantly hurting the balance sheet seem to be a feature of European loans sales at the moment.
In a recent interview with PERE, Rory Cullinan, chief executive of the Non-Core Division at Royal Bank of Scotland said of Europe’s banks in general: “Deleveraging is a bit of a myth. The problem is whether you are forced to sell loans at a discount, but there is a reasonable chance you are going to destroy capital, so you get into a death spiral.”
He said: “It has been clearly signposted that there is going to be a large volume of loans coming to the market, but so far that just hasn’t happened and I don’t see it happening going forward in any significant scale.”