Fresh Breeze Among NPLs

Americans revolutionize the business with new standards and online auctions

Frankfurt,  September 15, 2006

German banks have been selling distressed and non-performing loans (NPLs) for several years. According to estimates, there have been almost EUR 20 billion of NPL-engagements in the past year. Typically, portfolio sales are in the three digit millions. Thus, the business remains exclusive to a small group of large financially strong investors.

DebtX, a US-American advisory company that specialized in portfolio loan sales, wants to open this market to a broader range of investors. “Our goal is to convert an illiquid asset into liquidity”, says Kingsley Greenland, Managing Director at DebtX. To achieve this, the Boston-based company makes use of an internet platform. Historically, the business with distressed debt started some 15 years ago during the American real estate crisis.

DebtX made the business model Internet-usable. “We have created a market for loans where investors can perform efficient due diligence”, adds Kingsley Greenland. Due diligence is a laborious process including the review of loan documents and appraisals as well as on-site inspections. Via its Internet exchange DebtX provides all documents online in a standardized format while also complying with data protection. This enables buyers to get a quick overview. Minimum investments have been lowered: today, single loans with outstanding claims of only $1 million are traded. The previous duration of four months for a complete transaction could be boiled down to six weeks due to the document standardization. For the NPL specialists, Germany is an interesting market. In addition to this, there are still bad loans of more than EUR 100 billion in the books of financial institutions, and on the other hand the market could be driven by Basel II’s higher equity reserves for loans. This is of importance, as the DebtX business model also works for those loans that still perform, but no longer fit an institution’s strategy.