Texans Take A Shine to Bad German Loans

German banks are drowning in bad debts, particularly in the real estate branch. Yet one man?s trash is another man?s treasure. American equity funds have snapping up the portfolios being discarded in Germany.

Karsten von Köller does not give most people the impression of being a cowboy. Smartly dressed in a pin-striped suit, with an aristocratic air about him but still mild mannered, you would recognize him as a businessman, but you would not necessarily know that he is managing billions of dollars for Lone Star Capital, a private equity company from Dallas, Texas.

Perhaps unlike one of the Lone Star State?s more high-profile cowboys of the moment, George W. Bush, Lone Star Capital likes to spend time in Germany. A lot. Or better said: Lone Star likes Germany?s bad loans, in the industry referred to as NPLs — nonperforming loans, and there are a lot of those. German banks are dumping the NPLs onto the market in record numbers. Not individually, but in packages or portfolios whose files are so valuable that they are transported with a police escort from one German city to the next after a deal.

The financial institutions are happy to purge them. ?They can quickly clean up their balance sheets and get a shot of extra liquidity,? said Michael Hüther, director of the Institute for the German Economy in Cologne. The sums involved are by no means miniscule.

Last September, the Hypo Real Estate Bank jettisoned a nonperforming loan portfolio with a value of 3.6 billion euros ($4.68 billion) to Lone Star. No details were given as to how much the Texas equity company paid, but analysts estimate anywhere from between 40 to 70 percent of the portfolio value, which would be up to 2.5 billion euros. In Germany, the current NPL market is worth an estimated 300 billion euros and more portfolios are expected to hit the market in the near future.

For this complete story, please visit Texans Take A Shine to Bad German Loans.