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Private equity: Distressed funds are Europe’s new shareholder of last resort

Private equity funds specializing in distressed debt will strike a hard bargain before acquiring and recapitalizing troubled banks, but European state-aid rules make the alternative even less appealing.


Private-equity buy-outs are not the ideal solution to capital shortages at European banks. But needs must. These deals are on the up, made possible by the grudging acquiescence of the European Central Bank and the appetite of a handful of US distressed-debt investors, principally Apollo, Cerberus and Lone Star. 

They are no longer restricted to minor lenders. 

The pending central bank sale of Portugal’s Novo Banco could see Lone Star take a majority stake in a systemically important bank in a medium-sized European economy. In Germany, Apollo is rumoured to be a bidder for Kiel-based HSH Nordbank, an institution with €84 billion of assets. 

Aside from the banks’ desperation for capital, this is a European trend partly because of European Union restrictions on public recapitalizations. HSH Nordbank, Novo Banco and Italian lenders Banca Popolare di Vicenza and Veneto Banca must all find private capital to avoid being wound down under the ECB’s bank resolution framework – and they all are possible private-equity targets. 

The other fundamental driver is the lack of other private-sector options.

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