ECB prepares Amazon-style website to sell embittered Covid loans
The European Central Bank (ECB) is working on an Amazon-style website to sell hundreds of billions of euros in bank loans that have been soured by the coronavirus crisis, in a bid to support the economy and challenge dominance of the great Wall Street debt investors.
The plan, devised by senior ECB officials, is part of the eurozone’s 19-state effort to tackle a growing pile of delinquent loans and aims to prevent “troubled debt” funds from buying them from banks. unbeatable price.
“The idea is to open up the market to buyers of smaller wallets, with an Amazon or Ebay style marketplace where you can browse… It can move the market,” said Edward O’Brien, a senior ECB official involved. in the scheme.
Large funds bought billions of euros in loans in the aftermath of the last financial crisis, acquiring in the process parts of property, some of which have since appreciated in value.
“The bad debt market has been dominated by a few very large buyers. In a typical scenario, one of these companies can buy a very large portfolio at significant discounts, ”Mr. O’Brien said.
A study by Deloitte found that of the more than 450 billion euros in loans sold in Europe between 2014 and 2019, around half were bought by Cerberus, Blackstone, Lone Star and Goldman Sachs. These companies have been particularly active in Ireland.
Blackstone and Cerberus did not respond to a request for comment. Goldman Sachs and Lone Star both declined to comment.
Banks get rid of bad debt, normally at a fraction of their face value, to free up their balance sheets in order to make new loans and maintain both their own operations and their savings.
The ECB’s program, which has yet to be approved and will be discussed with European Union officials on Friday, is inspired by the Italian site BlinkS, which connects buyers and sellers of loans, as well as debt auctions by a US federal agency.
If EU states agree, the new market could come under the Single Resolution Board (SRB), a European Union agency in Brussels that ends bank failures.
Behind closed doors
“Why is it that every public market has to be subject to an open tender and bad debts can be sold behind closed doors? Bostjan Jazbec, a director of SRB, said.
“There is a lot of inside information involved in the successful buying and selling of bad debt. Covid means more bad debt to come. All sales must be transparent, ”added Mr. Jazbec.
Eurozone debt considered unlikely to be fully repaid stands at more than half a trillion euros, including credit cards, car loans and mortgages, and is expected to rise.
John Fell, a second senior ECB official involved, said the bad loans presented a broader challenge.
“The problem is that bad debts are too often understood as being reserved for banks. But it’s much broader, it affects the whole economy, ”Fell said.
It is customary for banks to sell old loans to investors, with individual packages sometimes exceeding € 10 billion, but the ECB fears this may favor big buyers.
“There are only half a dozen buyers who can write a check for hundreds of millions of euros,” said Gifford West of DebtX, which operates a similar platform in the United States, adding that bundling the loans into smaller lots could expand the pool of buyers up to 1,000.
As part of the new platform being considered by the ECB, which could be operational early next year, the package size could be reduced to 10 million euros, attracting smaller buyers who could pay more.
Besides the economic aspect of the ECB project, there is also a strong political dimension to challenge these big investors.
Supporters say they played a vital role, for example, in supporting the declining real estate market in the Republic after the crash, but critics have dubbed them “vulture funds”. – Reuters