“The European Commission has given the go-ahead for the GACS extension, and the expected renewal of securitisation of non-performing loans with state guarantee will expire on 7 March. Banks should take advantage of this window and attack the topic of their NPLs quickly. We have to take it for granted that there will not be a fourth extension of the GACS. It is very unlikely.”
These were the words of Prelios Group and Prelios Credit Servicing CEO Riccardo Serrini when he spoke today in Venice at the Banca IFIS NPL Meeting on the “The Evolution of Value Chains in NPE Collection” panel.
“The GACS is mathematically the best and most transparent tool for reducing the exposure of banks on NPLs. With this tool - and Prelios is the best observation point since today we are managing ten securitisations with public guarantee out of the fourteen launched in just a little over two years - the weighted average cost of capital is about 4%, definitely below the yields expected by the opportunistic investors,” said Serrini. “A bank using the GACS maximises the NPL exit value and minimises impact on the capital. In this way we reached the point of reducing net NPLs by over 50%, freeing up capital to allocate to the characteristic business of the banks, that is financing enterprises.”
Prelios’ CEO also emphasised the difference in approach necessary to attack the NPLs (non-performing loans, deteriorated loans) and the UTPs (unlikely to pay). “When we manage an NPL, the loan is forfeited and only a bad debt remains, and the counterparty often is in the midst of bankruptcy proceedings. The situation behind a UTP is very different. Here the counterparties are “living companies”, so an enormous amount of professional competence is needed, with teams considerably prepared to handle situations of temporary company crisis. Credit risk, and the very life of the creditor company, is solved only with expertise, managerial skills and an ultra-specialized work team. Prelios is ready to be, and has been for some time, the player of reference above all for the UTPs with underlying real estate property that represent 50% of the total, with future cash flows that can be estimated at about 80-90 percent of those foreseeable for all of the UTP stock.”
Riccardo Serrini spoke today sitting on the "The Evolution of Value Chains in NPE Collection" panel together with José Brena (Head of Group Distressed Asset Solutions, Unicredit), Flavio Gianetti (Head of Investments Management and Special Transactions Department, Capital Light Bank - Intesa Sanpaolo), Edoardo Ginevra (Head of NPLs, Banco BPM), Gian Luca Santi (CEO, Unipol Rec), Giancarlo Bartoletti (Head of Distressed Assets, Alba Leasing), Marco Cavazzutti (Head of NPEs, Banca Carige).
In tackling the topic of the current market economic situation, Serrini said that “the real estate sector is notoriously marked by cycles, and today we can say that with a different time frame, and with Milan standing in the foreground, we have passed the minimum peak point. This finally places us in front of a phase of growth. Usually in the early recovery phases the most present players are the opportunistic investors: large volumes, short investment horizons, high yields tied to high risk. In terms of time, the second ones to step in are the value added investors: expectations of return and hence lower risk appetite, that mainly work on repositioning quality real estate. Lastly, the “core” investors, such as the pension funds and insurance companies, come into play in the most advanced phase. They aim at long-term investments with low risk appetite, which are then the investments that give the market stability over the medium-long term.”
According to the Prelios CEO, “not only have the foreign core investors not yet arrived, but the opportunistic and value added investors take the lion’s share. However, those that have come forward have gradually withdrawn for the time being owing to a different perception of country risk. On the whole, we can say that there is little Italian equity, because pension funds and insurance companies are already heavily exposed on the real estate sector.”
Below the special of Class CNBC of 2 October 2018, held for the NPL Meeting in Venice, led by vice director Franco Tagliaferri and guests Jole Saggese and Carlo Cerutti.
Interview by Franco Tagliaferri of Riccardo Serrini, CEO of Prelios, on the role of GACS in the reduction of NPL, "We have contributed a lot to this tool to assist the banking system," says Serrini. "We hold a significant share of public securitisations, and we are the servicers of ten of the fourteen GACs announced in the previous two years"