LONDON â€" At the start of 2013, European banks are cleaning out their closets.
The Continent's largest financial institutions, including HSBC and Deutsche Bank, are expected to sell a combined 60 billion euros ($78 billion) of so-called noncore loans this year, a 33 percent rise compared with 2012, according to estimates from the accounting firm PricewaterhouseCoopers.
The renewed effort to offload unwanted assets comes as European banks are eager to reduce costs and shrink their balance sheets to comply with tougher capital requirements demanded by regulators. Europe's persistent financial problems also have altered the industry's economics, leaving many ba nks with bloated balance sheets and reduced profitability.
The fire sale has already seen the Royal Bank of Scotland sell property loans to the private equity firm Blackstone Group and its aviation leasing business to Sumitomo Mitsui Financial Group, the Japanese bank, for $7.3 billion. British rival HSBC also is considering the sale of U.S. real estate and personal loans worth a combined $6 billion to outside investors.
PricewaterhouseCoopers said that it expected European banks would focus on corporate and real estate loan disposals, particularly in countries like Spain where prices in the local housing market fell 15 percent annually in the third quarter of last year, according to the latest available government figures.
While European banks are keen to sell, bankers and lawyers say financial institutions continue to demand high prices for assets despite the glut of loan portfolios currently up for sale. So far, analysts add that differences over price have kept potential buyers, including private equity firms that specialize in distressed assets, from picking up more underperforming loan assets because the firms believe they remain overvalued.
“In 2012, we saw a large number of different banks bringing their portfolios to market,†said Richard Thompson, a partner at PricewaterhouseCoopers in London. “The issue of price will clearly remain a key challenge in future for sellers.â€
European ba nks still have a lot of work to do.
PricewaterhouseCoopers estimates that firms still have more than 2.5 trillion euros of noncore loans that they are looking to sell. As the 60 billion euro estimate for loan portfolio sales in 2013 represents just 2.4 percent of that total, Europe's banks are likely to remain eager sellers for many years to come.
