Garnet Capital Advisors Blog

July 1, 2015

Loan Portfolios Offer Growth Opportunities for Banks

What are big banks doing lately to stimulate and continue growth? Buying loan portfolios.

Wells Fargo, a San Francisco-based banking giant, recently announced its plans to purchase $9 billion in property loans from General Electric.

According to a report from The Wall Street Journal, Timothy Sloan, banking head of Wells Fargo, said the bank hopes to continue buying loan portfolios or assets from other firms, in addition to GE's, as long as they fit Wells' business model, as reported in the Wall Street Journal.

Hundreds of GE loans in its portfolio were examined by Wells Fargo employees before the sale. Now, the loan portfolio is performing better than the bank even anticipated.

This isn't the first time Wells Fargo has acquired loan portfolios from other companies. In June 2012, it picked up a $6 billion subscription-finance portfolio from German state bank WestLB. Earlier that year Wells picked up a $9.5 billion energy portfolio from French bank BNP Paribas. In 2013 Wells acquired a $1.6 billion loan portfolio from ING real estate finance.

Other banks and financial institutions are seeing the profit potential in loan portfolio acquisitions and joining the bandwagon. Last summer New York-based investment banking firm Blackstone Group LP bought a loan portfolio worth 6.39 billion euros ($8.64 billion US) from Spanish lender Catalunya Banc SA, formerly a savings bank. Japanese banking holding company Mizuho Financial Group acquired North American loan portfolios from the Royal Bank of Scotland for $3 billion earlier this year.

There's a lot of money to be made off of loan portfolios from companies who are more focused on streamlining their business.

Clearly there's money to be made buying loan portfolios, and savvy financial institutions and lenders are seeing that. Through a combination of purchasing the debt at a discount and understanding the value of the underlying security, these banks can realize a profit where the original owner couldn't. While other banks and financial institutions may be looking to shrink their business and reduce their balance sheets, other companies can reap the rewards.

Yet the process of identifying and buying loan portfolios can be a tricky one. Considering current low interest rates, any loan portfolio acquisition can look potentially attractive, which can be dangerous without the necessary research and asset pricing beforehand. It's critical to look at the potential returns from the acquisition by analyzing the cost of money over a long time period.

Garnet Capital - Uncovering Areas of Opportunity in Loan Portfolio Purchasing

Among the most important factors of a loan portfolio purchase is uncovering all pertinent information related to it. Identifying and understanding the data about the loans is critical before any purchasing decision is made. While a loan portfolio purchase can be a big source of revenue for banks and other financial firms, it can also be a great source of risk if the necessary precautions aren't taken.

At Garnet Capital, we can help you unveil areas of concern, as well as areas of great opportunity when it comes to buying loan portfolios. We have the insight and experience necessary to show you the value of an offering, and identify any discrepancies before making a purchase.

There's money to be made in the acquisition of loan portfolios. At Garnet Capital, we can help you maximize your profit potential while drastically minimizing risk.

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