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Banking

What's the buzz in German NPLs?

Sales of non-performing loan and real estate portfolios to foreign investors have stirred controversy in Germany, with the buyers being described by a senior politician as “a plague of locusts”. But the medium-term benefits could go beyond a much-needed injection of liquidity and balance sheet repair and provide a fresh impetus to the German economy.

“A SYSTEM WHERE banks are piling up non-performing loans has a very negative impact on the economy. If you look at NPL problems around the world it always takes the banks to clear their bad debt problems for valuations in the underlying assets to pick up. Banks will not extend credit on more assets in the same asset class. Take real estate: the minute banks sell to people like us, volumes can start to rebuild, and that’s great for the German economy.”

So argues Bruno Scherrer, partner and European head of Lonestar, a Texas-based private-equity firm that has played a pivotal role in stirring up the honey pot of German lending.

Scherrer explains that NPL values in Germany are so high – anywhere between €200 billion and €350 billion, depending on which analyst you believe – that the German economy can no longer sustain them. “Once that happens, the NPL problem won’t disappear by itself unless the growth in the economy is double-digit growth,” he says.

So are Lonestar, and other predominantly US-based institutions now looking to buy up NPLs, riding to the rescue of the Germany economy? Tell that to the domestic reactionaries bemoaning the “locusts” now attempting to strip bare the country’s financial sector.

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