European Banks: Here's a Loan to Buy Our Loans

It’s come to this: European banks, under pressure from regulators to unload distressed assets, are having to lend buyers the money to get the deals done. Royal Bank of Scotland Group may loan Blackstone Group as much as £600 million ($939 million) to help the private-equity firm buy a stake in a £1.4 billion commercial mortgage portfolio, say three people who asked not to be identified because they weren’t authorized to speak about the deal. Credit Suisse Group, Switzerland’s second-largest bank, agreed to finance the sale of $2.8 billion in soured property loans to New York-based private-equity firm Apollo Global Management at a 57 percent discount last December, according to a person with knowledge of the transaction. In Ireland, the agency set up to purge Irish banks of risky property loans says it will provide as much as 70 percent financing to help unload commercial assets. “The use of vendor financing to delever defeats its own purpose,” says David Thesmar, a professor of finance at HEC Paris, a business school. “It shows banks’ deleveraging is going to be tougher than planned.”

Lenders have pledged to whittle their assets by more than €775 billion ($1 trillion) within two years as regulators press them to meet a 9 percent core capital ratio by June 2012. Because credit is scarce, banks are financing some transactions themselves even if it means keeping loans on their balance sheets. Richard Thompson, a partner at PricewaterhouseCoopers in London, said half the loan sale deals that his firm is advising on involve vendor financing.