Morgan Stanley winds up NPLs in Italy

Morgan Stanley’s real estate arm has signalled a retreat from the Italian non-performing loan market with the sale of five portfolios for €918.5m.

Morgan Stanley Real Estate Funds (MSREF) has signalled its exit from non-performing loans (NPL) backed by property in Italy.

In an announcement, Italian real estate company Pirelli RE says a 2004 joint venture between it and MSREF to invest in non-performing loans has been wound up.

It also says it is buying five NPL portfolios for €918.5 million ($1.2 billion) owned by the Pirelli/MSREF joint venture through special securitisation vehicles. As part of the deal, Pirelli is buying MSREF’s 53 percent stake in Credit Servicing SpA in which it already owns 47 percent. Credit Servicing is a company with offices throughout Italy to recover money from debtors. Further, it is buying MSREF’S 25 percent of Asset Management NPL in which it owns 75 percent.

MSREF declined to comment on the announcement.

However, it has become less involved in the day to day running of Credit Servicing and has been outbid on a number of large portfolio sales by Italian banks in the past three years. That has prompted experts to say it believes the prices banks are asking for NPL portfolios would not allow it to make acceptable returns.
It has not agreed to pursue Pirelli’s aim of growing the business across Europe and in Italy where it increasingly depends on regular but small deal inflows rather than large portfolio acquisitions worth billions of euros.

Accompanying the statement about the MSREF joint venture, Pirelli said it had formed a joint venture with Calyon, the corporate and investment banking arm of France’s Credit Argricole Group to expand the NPL business across Europe, including in Italy, Poland and Germany. The German NPL market alone is estimated to be worth €300 billion by accountant Ernst & Young.

MSREF became the first major property investor to enter the Italian NPL market in 1996 when Italian banks were allowed for the first time to write off portfolios within five years. It bought out banking shareholders in Italy’s then only significant NPL recovery service, Servizi Immobiliari Banche (SIB), and expanded it from 40 staff to around 300.
Opportunity funds Fortress and Goldman Sachs’ Whitehall Fund followed MSREF into the market as it took off.

Recent deals in Italy have been encouraged by changes in European accounting rules which have forced banks to sell off NPL portfolios. In June, for example, Italian bank Banco di Sicilia sold a €2.3 billion portfolio.