Portfolio Reduction Research Articles

‘Restructuring Funds’; an Alternative Tool for a Systemic Approach to Active Management of Unlikely to Pay (UTP)

This paper is aimed at illustrating an innovative tool/strategy to address the general, wider and multifaceted NPL issue from a banking perspective, focusing in particular on UTP; a half-way strategy between a traditional “hold/forbearance” approach and a traditional “portfolio reduction” approach, producing a change in the type of exposure. Such a new, complementary, tool is aimed at overcoming market inefficiencies that other “traditional” approaches/tools currently present and, at the same time, helping to effectively reduce the legacy assets at bearable levels. At the same time this is a “debtor-level” approach that pursues the concentration and coordination of all the exposures of the banking system vis-a-vis the same debtor, as a precondition for a successful restructuring process of corporate borrowers in distress. Such a tool can be identified in a so called “Restructuring Fund”, a specific and peculiar kind of AIF.

Bad assets options and bank resolution in Europe

Purpose – This paper analyzes the new EU Bank Recovery and Resolution Directive (BRRD) to determine the level of guidance on instruments to wind-down bad asset portfolios of asset management vehicles. In the absence of such detailed guidance stipulated by the BRRD, the aim is to provide certain practical guidance to future resolution planning and execution. Design/methodology/approach – This paper draws upon experience from portfolio reduction strategies applied at European bad banks in the aftermath of the 2008 financial crisis. For illustration purposes, the paper use case study data from a bad bank located in the eurozone. Findings – For the new European Commission, implementation and enforcement of the Banking Union within the eurozone is currently a key priority. Present efforts are mainly directed towards minimum technical standards. However, the fundamental question of how to orderly unwind a bad assets portfolio without the usage of public funds remains partly addressed only. While a uniform approach to any bad asset does not seem to be applicable, certain lessons learned from previous financial crises may contribute to a selection of reduction strategies. Research limitations/implications – This paper draws upon experience from portfolio reduction strategies applied at European bad banks in the aftermath of the 2008 financial crisis. It includes case study data from the wind-down of a eurozone bad bank detailing the asset reduction strategies achieved so far. Such per asset class wind-down patterns have not been published and commented on in academia so far.