For over 4 years the talk has been about the €1 trillion and rising of European NPL’s and the opportunity for the restructuring profession, but painfully little progress has been made, particularly in the corporate distressed loan sector. Portfolio offerings have been short on the depth of information buyers need to commit their money and in many cases the banks’ ability to sell at realistic rates is hampered by inadequate provisions. Such is the gap between provision and reality that one really has to wonder that in some cases it may not be just the bank that is under water but the sovereign too. How does the Eurozone banking system resolve this conundrum without tipping the whole edifice over?

Well clearly this is not just a buy sell transaction exercise, nor a “delay and pray exercise”. The bid offer spread gap is too great and time will not heal bad management performance. So some lateral thought is going to be required. And if it can’t be by increasing the provisions it must be by increasing the underlying value of the loans. Corporate performance enhancement is not a quality one associates with banks so it will be left to the service platforms buying the debt to add that value. This is an opportunity for a marriage of Funds’ cash with Turnaround professional expertise. There has been no lack of enthusiasm from the Turnaround Profession’s side. So perhaps a wake-up call to the Funds is needed that banging on about unrealistic price levels is not going to get the NPL’s released. They need to move from the buy/sell mind set to actually working for a living and start adding value.

Alan Tilley – Managing Partner and Chairman, BM&T

21st March 2016

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