The pricing of European non-performing real estate loan portfolios: evidence on stock market evaluation of complex asset
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The pricing of European non‑performing real estate loan portfolios: evidence on stock market evaluation of complex asset sales Florian Manz1 · Birgit Müller1,2 · Dirk Schiereck1
© Springer-Verlag GmbH Germany, part of Springer Nature 2020
Abstract Recent empirical evidence raises doubt about the ability of financial market participants to generate information efficient valuations for capital market instruments whose cash flows are related to residual claims and dependent on real estate income. We contribute to this literature with the examination of value implications of nonperforming loan (NPL) divestitures in the banking industry during the period 2012– 2018. In a first step, we provide descriptive statistics of the European NPL market, which lacks transparency and publicly available basic information on portfolio size and components. We then analyze wealth effects of distressed loan sale announcements for a uniquely large transaction database with 317 NPL deals, which is largely driven by real estate collateral. Our results show positive stock market reactions for vendor banks following NPL divestitures that tend to be driven by real estate collateral and a size effect. Keywords Non-performing loans · Distressed real estate · Restructuring · Banking sector · Real estate finance JEL Classification G14 · G21 · R32
Electronic supplementary material The online version of this article (https://doi.org/10.1007/s1157 3-020-00983-1) contains supplementary material, which is available to authorized users. * Dirk Schiereck [email protected]‑darmstadt.de Florian Manz [email protected]‑darmstadt.de Birgit Müller [email protected] 1
Technical University of Darmstadt, Hochschulstrasse 1, 64289 Darmstadt, Germany
2
Center for Digital Transformation, Technical University of Munich (TUM), Bildungscampus 9, 74076 Heilbronn, Germany
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1 Introduction Non-performing loans (NPL), commonly referred to as loans in arrears for at least 90 days, have continuously been characterized as the top priority of the European Central Bank (ECB) and continue to attract central attention (see inter alia ECB 2018a, b). With the outbreak of the European debt crisis, the quality of banks’ assets had deteriorated in a manner that, despite robust economic recovery and a variety of regulatory efforts, NPL still today pose a threat to bank and thrift institutions. Against this backdrop, the European regulator requires banks to develop effective strategies for reducing NPL, to set up clear governance and to operate powerful workout structures (ECB 2017). The ECB assists with a variety of guidance measures, and especially since 2014, one of the core advices is active portfolio reduction, effectively requiring banks to sell or securitize their (mostly real estate based) residual claims on NPL holdings to loan investors in the secondary market. With the divestiture of NPL, risky and complex bank assets are transferred from a bank-based to a market-based financial system, which raises a number of
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