• Service: Advisory
  • Type: Press release
  • Date: 10/13/2011

Debt markets to see unprecedented activity in 2012, says KPMG report 

After almost three years of economic recession and stagnation, many markets are starting to feel the pressure of mounting debt, according to a recent market review conducted by KPMG’s Portfolio Solutions Group. As a result, investors can expect to see greatly increased levels of activity in the debt sales markets over the next two to three years as banks seek to jettison non-performing or non-core debt portfolios to reduce their exposure to risk and raise much needed capital.

In the second edition of Global Debt Sales, KPMG professionals examine the state of the debt sales markets in 22 countries and offer insightful predictions for the future of the markets on a local, regional and global level.

“Global investors are starting to circle the core markets in Europe with the greatest potential for loan portfolio deals, being the UK, Ireland, Spain and Germany” said Stuart King, the co-leader of the Portfolio Solutions Group and a partner with KPMG in Spain. “A number of large financial institutions have very aggressive divestment targets over the next few years so there should be great opportunities for both strategic and financial investors.”

However, many countries continue to experience mooted activity in local debt sale markets. Pricing gaps between the expectations of buyers and sellers continue to thwart large deals; increased regulation on capital and risk – often considered a potential catalyst to sales – have in reality caused banks to take a ‘wait and see’ approach; in many markets buyers are simply unable to secure capital for larger portfolio purchases.

Particularly in Europe, but also increasingly in other markets around the world, the ongoing specter of sovereign debt defaults and the implementation of national austerity programs have raised the potential for even greater levels of debt sales in the near future. “As the deadlines approach for the repayment of support loans, most markets can expect to see an accelerated rate of disposals by banks, particularly of non-performing and non-core assets,” added Mr. King.

That said, the report points to continued activity in the European non-performing and sub-performing debt markets – albeit at a much slower pace – thanks largely to the diversity of the European debt sales markets.

The report also suggests that Basel III regulations will soon begin to spark a flurry of activity in global debt sales markets as the impact of the regulation becomes clearer. For example, the need for increased capital ratios and tighter requirements on the quality of capital will almost certainly force a large number of banks to reconsider their debt portfolio mix which should lead to a higher level of debt sales.

“One peculiarity of regulatory-driven change is that it applies the same pressures – in the same direction – to the entire banking industry at once,” noted Mr. King. “So while there may be pressure to sell off those large capital and liquidity hungry portfolios, there may be few investors lining up to buy them.”

Indeed, in many markets, banks seeking to exit non-core performing portfolios have yet to see the emergence of any real strategic buyers in the market. And while a number of new buyers such as pension funds and sovereign wealth funds are increasingly seeking to invest directly into loan portfolios, the anticipated rebalancing of banks’ loan portfolios will require strategic buyers to return to the market en masse.

“Based on our research, we see the potential for a massive upswing in debt market activity as economic and sovereign debt concerns start to get sorted out,” added Mr. King. “Within the next 12-18 months, we should see a perfect combination of increased investor liquidity, greater confidence in financial markets and a new wave of loan portfolios brought to the market. At that point, global debt sales activity should be positively frothy.”

Note to Editors:

KPMG is a global network of professional firms providing Audit, Tax and Advisory services. We operate in 150 countries and have 138,000 people working in member firms around the world. The independent member firms of the KPMG network are affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. Each KPMG firm is a legally distinct and separate entity and describes itself as such.

KPMG International performs no professional services for clients nor, concomitantly, generates any revenue.

Global Debt Sales is a series of publications in which KPMG’s Global Portfolio Solutions Group examines recent debt portfolio activity in a number of key banking markets across Europe, the Americas and Asia Pacific. The series seeks to cover all types of debt sales, including performing and non-performing loans, and offers high-level insights into trends and new opportunities.

KPMG’s Global Portfolio Solutions Group is a new practice within KPMG, consisting of a senior team of skilled professionals. With extensive experience of assisting both sellers and purchasers, KPMG firms’ professionals have worked on many non-core (primarily performing) and non-performing loans and receivable sale disposal mandates around the world.

The Global Portfolio Solutions team works with a range of sellers to conduct analysis, options review and potential sales of debt portfolios, and assists purchasers in sourcing portfolios, undertaking due diligence, valuation and the structuring of debt portfolio acquisitions.

Global Debt Sales – Volume 2 is available here (PDF 2.01 MB).

For further information please contact:

Julie Wilson

KPMG International

+1 416 777 3460