While selling loan portfolios is one way to meet global Basel III capital standards that go into full effect in 2019, many European lenders have sought to avoid realizing losses on investments. The European Central Bank s policy of flooding the banking system with cash also has eased pressure to sell at depressed prices. Waiting Game Its a game of waiting while the banks are able to provision more and more each quarter, each year so they can sell loans at discounted levels, said Alexandra Jung, a partner and co-head of European investments at Oak Hill Advisors LP, a New York-based debt investor with more than $20 billion under management. The scale of the market is there, and weve seen banks beginning to sell. Political pressure is another obstacle. Investors scouting for bargains in France or Germany have found it easier to buy debt from banks based in other countries. After a binge of cross-border lending in the years before the crisis, European banks are now pressed by local authorities to dump foreign loans in favor of domestic borrowers, said Nicolas Veron, an economist at Bruegel, a Brussels-based research group. French banks are not big sellers of French assets, said Avenue Capital s Furst. In France, Italy, Greece, Ireland and the U.K., the last loans that banks will typically sell are domestic loans. American DNA The buyers are predominantly from the U.S. Thats a reflection of a long history of distressed-deals in the U.S., as well as the novelty in Europe of banks forced to sell bad loans. None of the significant players is local, said Victor Khosla, founder and chief investment officer of Strategic Value Partners LLC, a $3.4 billion Greenwich, Connecticut-based hedge-fund and private-equity firm that has made distressed investment in Europe since the crisis began. Its the American firms that have the culture and the DNA to do this. The distressed-asset sales are part of a larger effort by European banks to slim down. RBS, based in Edinburgh, said last week that a group headed by private-equity firms Corsair Capital LLC and Centerbridge Partners LP is the preferred investor ahead of a planned initial public offering of its 314 branches.
LONDON (CNNMoney) Investors are scouring Europe for ways to make money from its tentative recovery, and one U.S. firm thinks it has found the answer — buy Greek government bonds. Japonica Partners said it believed Greek debt was “massively undervalued” and should be rated several notches above the junk status assigned by the big credit rating agencies. Greece has been shut out of international bond markets since 2010, when its government borrowing spiraled out of control. It has been rescued twice by the European Union and International Monetary Fund and was forced to restructure its debt in March 2012, imposing losses of more than 100 billion euros on private bondholders. Related: Europe’s recovery is weak, warns ECB But hedge funds — such as Dan Loeb’s Third Point — and other niche investors who bought into Greek debt since the restructuring have made a killing. Yields on Greek 10-year debt in the secondary market have plunged from around 44% in March 2012 to 9%. Japonica’s statement was greeted with derision by some investors Thursday, but the firm that made its name restructuring bankrupt Allegheny International in the early 1990s believes it has spotted an opportunity others may have missed. It claims to have become one of the larger, if not the largest, holder of Greek government bonds, and has hired a former senior executive from Norway’s oil fund — one of the world’s biggest investors — to help manage the portfolio. Related: Investors embrace European stocks “Greece is one of history’s most extraordinary sovereign rejuvenations hidden in plain sight by pervasive systemic misperceptions,” Japonica said, adding it expected yields should break below 5% in 2014. It’s a bold prediction but Japonica may have a point. Greece’s headline economic data and social crisis remain as depressing as ever, and it may yet need another 10 billion euros in support. Still, the government is on track to deliver a primary budget surplus — stripping out the cost of servicing its massive debt this year — and hopes to return to the bond market in the first half of 2014.
Greek bonds: Europe’s hidden gem?
Although it may be awful, sadly this is neither an unusual nor unfamiliar story. According to the UNHCR, in 2012, some 15,000 migrants and asylum-seekers reached Italy and Malta and almost 500 people were reported dead or missing at sea. The figures are damning and shameful. Too many people are dying in their attempts to reach safety in Europe and much more needs to be done to address the root causes of why people risk their lives in this way. One thing is clear — this latest incident is an appalling reminder of what happens when people escaping persecution are denied access to safety at the EU’s frontiers. While we don’t know the personal circumstances of everyone on board this particular boat, we do know that the majority were from Somalia and Eritrea, two of the top 10 sources of refugees in the world, according to the UNHCR. Both are countries with well documented human rights abuses. Dozens dead in Italian boat accident Given this, it’s reasonable to believe that a number of people on board were refugees, fleeing persecution and seeking safety in Europe where there are substantial and settled Somali and Eritrean communities. Yet there’s been considerable head scratching in the media about why people would put themselves at such risk. Why would you get on an overcrowded, potentially unseaworthy vessel and risk your life to make it to Lampedusa? For refugees, the answer is simple — what they’re leaving behind is much, much worse. Somalia and Eritrea’s human rights abuses are well documented. Sexual violence and torture are commonplace.