Government initiatives and policymakers' influence on the market were inevitable topics of discussion at IMN's European Distressed Credit Investing Summit on Friday. While some participants expected the UK's Asset Protection Scheme (APS) to ultimately be beneficial, the majority called for increased clarity around government intervention.
"There continues to be uncertainty around how government intervention will play out, which isn't helping the market. We need some structure to policymakers' efforts," said one panellist, Graham Martin, partner advisory at PricewaterhouseCoopers.
By way of example, he explained that the Resolution Trust Corporation (RTC) was successful in addressing the value/pricing issue, as well as providing clarity regarding both the government's and tax payers' obligations. Another example is the Swedish crisis, where the government had the ability to force banks to disclose losses and regimented the process in terms of valuations. "But over the past 24 months there have been so many different initiatives that they have served to create confusion in the market," Martin added.
Another panellist, Jonathan Fragodt, head of European distressed illiquid credit at TPG Credit, pointed out that – in addition to retroactive assets – there should be a provision to help distressed but performing borrowers to refinance. Thanks to its support of a number of lenders, the UK government is estimated to control 45% of the UK mortgage market, so it is in a position to help. However, so far it is perceived to have been reactive and therefore has served to put the breaks on any progress.
"We're an active investor in the UK whole loan space and we've observed a complete halt in bank lending – it appears that lenders got some breathing room," confirmed Fragodt. "The UK government's action has slowed down the resolution process – although the APS could ultimately be beneficial."
But one potential positive development could be the formation of a support network around an RTC-type vehicle. Monique Suter of Alpstar observed that the European market needs to develop a better infrastructure in terms of servicers and independent advisors/asset managers.
"Generally, Europe has never had an asset management industry to the extent of that in the US," she said. "The fact that there is a lack of independent asset managers has been problematic for prices: since there are few sellers and one side of the market doesn't mark-to-market, there has been pricing dislocation. But independent managers can spur prices – there needs to be enough of them to create an efficient market."
www.structuredcreditinvestor.com
