Bloomberg News

Apollo’s Black Sees $2.1 Trillion in Europe Bank-Asset Sales

September 16, 2011

(Adds hedge funds and private-equity firms targeting European assets starting in fifth paragraph.)

Sept. 16 (Bloomberg) -- European banks need to sell 1.5 trillion euros ($2.1 trillion) in assets because of the region’s sovereign-debt crisis, said Leon Black, head of private-equity firm Apollo Global Management LLC.

“There are going to be great sales and they have already started,” Black said today at an investment forum in Sochi, a resort town in southern Russia. He said the sales will happen during the next several years.

U.S. Treasury Secretary Timothy F. Geithner made his first- ever appearance at a regular meeting of European Union finance ministers and central bankers today to urge them to find a solution to their sovereign-debt crisis. Government debt, together with high unemployment and a weak housing market are pushing the region into a recession, Black said.

Concern over sovereign debt levels in Greece, Portugal, Spain and possibly Italy will drive banks to unload whole companies, real-estate loans and non-performing debt, according to Black. Those assets would give investors “extraordinary opportunities” to diversify away from sovereign debt, he said, adding that Apollo would be interested in having Russia as a co- investor on some of the assets.

Lone Star Funds, the Fort Worth, Texas-based private-equity fund, last month collaborated with JPMorgan Chase & Co. and Wells Fargo & Co. to buy Anglo Irish Bank Corp.’s $9.65 billion portfolio of U.S. real estate loans. Blackstone Group LP was a final bidder for at least a portion of the loans.

Banco Espirito

Still, hedge funds and private-equity firms that raised funds to buy assets from European sellers crushed by the sovereign debt crisis may have to wait to reap a profit. Banks have been reticent to offload bad loans because selling them at a discount would trigger losses. Meanwhile, low interest rates imposed by the European Central Bank have helped indebted companies meet their debt payments.

Banco Espirito Santo SA, Portugal’s biggest publicly traded bank, had only sold about half of a 2.5 billion euro ($3.5 billion) group of loans by Aug. 1 after putting them on sale in January.

The bank tried to elicit bids from hedge funds including Davidson Kempner Capital Management LLC and GLG Partners Inc. for the loans, which funded the construction of roads, airports and athletic-stadiums. Chief Financial Officer Amilcar Morais Pires said last month he was disappointed by the progress.

Money managers who balked at those assets say they were offered for only 5 percent less than face value, making it difficult for hedge funds to make a profit from them.

$5 Billion Raised

Private-equity firms raised $5 billion in 2010 for funds targeting European distressed assets and corporate turnarounds, compared with about $400 million during the 2002 recession, according to London-based researcher Preqin Ltd. With leverage, the firms have a record $5.8 billion to deploy, Preqin said.

Apollo was seeking to raise $2.8 billion for a fund that would aim to buy European loans in, or near, default, two people with knowledge of the matter said Aug. 12. Oaktree Capital Management LP, the Los Angeles-based private-equity firm led by Howard Marks, was seeking as much as $3 billion for a fund to buy assets in Europe, according to people with knowledge of the plans. Officials at the two firms declined to comment.

Colony Financial Inc. and Starwood Property Trust Inc., two U.S. mortgage investors, have said they are looking at Europe. Colony, based in Santa Monica, California, in July invested $30 million for a stake in non-performing loans backed by German buildings.

Starwood, run by Barry Sternlicht, has made deals including a $71.5 million loan on a group of 45 properties leased by a unit of Metro AG, Germany’s largest retailer.

--With assistance from Jason Kelly in New York. Editors: Andrew Langley, Alan Crosby, Josh Friedman

To contact the reporters on this story: Ekaterina Shatalova in Sochi, Russia, at eshatalova@bloomberg.net; Scott Rose in Moscow at rrose10@bloomberg.net

To contact the editors responsible for this story: Mark Sweetman at msweetman@bloomberg.net; Balazs Penz at bpenz@bloomberg.net


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