European Banks Get ‘False Deleveraging’   Leave a comment

Interesting how creative banking gets, and how the Banks, the Regulators, and the Buyout Groups interplay in the behind the scenes financial world.

“The use of such funding can reduce the riskiness of the assets and free up regulatory capital, David Abrams, in charge of European nonperforming loan investments at Apollo Global Management in London, said in an interview.

“The risk for the banks changes,” he said. “In a way, they are turning nonperforming loans into performing loans.”

The buyers need to inject sufficient equity for the banks providing vendor financing to benefit from a regulatory capital point of view, said Alexander Greene, managing partner at New York-based private-equity firm Brookfield Asset Management LLC.

“Ultimately, regulators scrutinize those deals,” Greene said. “The question is then, will the investors be able to earn their returns if they overcapitalize?”

Banks must be innovative to sell the “stickiest” of their assets, said Ian Gordon, an analyst at Evolution Securities Ltd. in London.

“Banks will be naive if they use vendor finance to notionally dispose of assets at whatever price the market will take,” he said. “They could fall in the trap in giving away the upside without meaningfully reducing the downside.” ”

via European Banks Get ‘False Deleveraging’ – Bloomberg.

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Posted November 27, 2011 by arnoneumann in banking, finance

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