The NPL market is volatile and quite complex. In 2017, a few maxi-transactions announced last year are becoming reality, yet despite transaction value enjoying a net increase on 2016, the actual availability of portfolios to be sold that meet the requirements of the many investors and buyers is quite limited. Some key buyers were unable to even conclude a single deal for a major portfolio.
This is the picture painted by Credit Village's National NPL Observatory monthly report. Between 1 January and 31 August 2017, the Observatory recorded a notable 114 NPL portfolio transactions, which is almost double the 62 recorded in the same period in 2016. Since January 2016, Credit Village's Observatory has been tracking all NPL transactions in Italy. Its latest Monthly Track Record shows the gross book value of transactions between January and August 2017 is €31.2 billion, with an estimated real value of €21.2 billion.
This sizeable €10 billion difference creates a clear picture of the gap between the overall (or announced) value of a transaction and the value of the portfolios that actually change hands. Various securitisation transactions have seen the seller maintain a sizeable stake, directly or indirectly, in the SPVs to which the portfolios are transferred.
The best known such example is UniCredit's FINO transaction. On 30 June 2016, the value "announced" by UniCredit was €17.7 billion. At the time of the transfer, this value was reduced by 1.5 billion because of amounts received by the bank from collection activities. Despite this cut, the talk is still about a sale of €17.7 billion. Yet, the real value of the pools of loans that are no longer held by UniCredit is a touch over €8 billion.
By analysing the structure of the securitisation transaction, Credit Village's Observatory has found UniCredit kept nearly half of the €16.2 billion portfolio. Only 50.1% of the securities issued by the specifically created vehicles (Onif, Fino 1 and Fino 2) are actually owned by Fortress and Pimco, the two investors who signed the deal. The remaining 49.9% is still owned by UniCredit, which only plans to sell a further 30% in the second stage of the transaction.
The Track Record kept by Credit Village's Observatory also shows another new trend in the NPL market. 2017 has seen a significant number of "surgical" transactions, that is, sales of individual positions, which are often non-performing mortgage loans or corporate positions sold, in many cases, by small banks. Such deals are almost always concluded one-to-one, although the investors are small entities and major businesses.
In 2017, the NPL stock made available for sale by consumer credit companies dropped notably, following many years in which these firms were the main source of origination, especially for the unsecured segment. Transaction volume in the opening 8 months of 2017 was slightly above €1 billion. This is tied to this sector commencing, back in 2012, major plans to sell non-performing positions, meaning current stock is close to zero. At the same time, this sector adopted more stringent rules for granting and managing such credit.
The Re-Trade market has also dropped substantially, having shown very dynamic signs in 2016. At only €1 billion in transactions since the beginning of 2017, it is well down on the €5 billion for the same period in 2016. This is putting pay to the hope of a genuine secondary market being established that is able to meet the needs of those investors who are unable to find deals for new portfolios.