Europe's banking sector is pressing ahead with plans to trim its exposure to real estate debt in the wake of stricter capital requirements and the ongoing sovereign debt crisis.

Follwing a string of loanbook trades by UK and Irish lenders, some of the continent's largest financial institutions - which have long been reluctant to crystallise losses through sales - are now taking steps to unwind billions of euros of real estate loans. But they may face huge discounts. Research from PropertyEU shows that discounts so far on the loanbooks traded have averaged out at around 40% with highs of up to 80%.

Although banks' portfolio sales have so far been confined to Ireland and the UK, there is evidence that this is changing rapidly. Hit by the sovereign debt crisis and pressed by Basel III regulations, which require lenders to set aside extra capital reserves to offset potential future losses, the European banking industry is under pressure to reshape its balance sheet at a faster pace than it had possibly imagined. In total, according to the European Banking Authority, the EU financial institutions will need to raise EUR 115 bn in fresh capital by mid-2012.

'There is a huge need for recapitalisation but, given the discount at which the industry is trading, there are not many hopes for lenders to actually access the equity market. The only alternative is for them to de-lever their balance sheet through asset sales,' commented Philippe Deloffre, a director at CBRE EMEA Debt Advisory.

The full article appears in the January/February issue of PropertyEU. Click on the link below to subscribe

 

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