Debt-collecting foreign firms zoom in on Spain

While real estate investors, construction companies and banks may have lost their interest in Spain, for one group of multinationals the country is rapidly becoming a goldmine.

Indeed, the rush to get in quick has already begun.

In recent months, debt collection companies have started to move in en masse on the Spanish market.

The first foresighted foreign firms to do so, among them Sweden’s Intrum Justitia and French groups Contentia and Eiffico, have recently been joined by Norway’s Aktiv Kapital and Germany’s GFKL, who have bought Spanish subsidiaries, besides Britain’s Link Financial, which has set up shop from scratch.

Spain’s biggest boom now, it seems, is not in selling houses but rather in collecting the debts of those homeowners and consumers who are failing to meet their financial obligations amid the current downturn.

There are increasingly rich pickings to be had. According to the Spanish Mortgage Association, the value of Spanish mortgages in default rose from 0.37 percent of the total in June 2003 to 0.45 percent in March 2007 before surging to 0.99 percent in the following 12 months.

The value of non-performing consumer loans and unpaid credit card bills has undergone a similar jump, rocketing to EUR 15.4 billion in June from EUR 7 billion in January 2007. And that may be only the tip of the iceberg.

"We think there are more people in default than [banks] are admitting," says José María Martínez, the secretary general of Comfia-CCOO, the financial services division of the CCOO union.

Expectations of a boom in debt defaults and hence increased demand for the services of debt collectors has caused multinationals to either displace or gobble up Spain’s homegrown debt recovery firms, most of which were set up by lawyers.

In addition, the nature of the business is changing, with banks less interested in paying someone to go after individual delinquent borrowers. Instead, they are packaging their bad debt into portfolios and selling them on to the debt collectors to deal with.

Multigestión Iberia, until recently one of Spain’s largest debt collection companies, admits that it let itself be bought by GFKL "in order to get into the new business".

"We couldn’t do it alone," acknowledges a representative.

Capital – to buy lenders’ portfolios – and know how – to be able to gauge the value and the possibilities of recuperating the debt – are essential in the new business model. Caution is also key, as evinced by the fact that the number of debt portfolios being bought and sold has risen only gradually despite the surge in the numbers of defaulters.

Part of the reason is that even debt recovery firms with their teams of economists, analysts and lawyers are uncertain of the outlook for the Spanish housing market, in which the biggest chunk of debt is tied up.

"We don’t know how far [home] prices are going to fall. We have to proceed carefully so as not to get our fingers caught," notes María Herdad, a representative of Aktiv Kapital.

In light of the current turmoil in the real estate sector, portfolios of unpaid mortgage loans are currently selling for half of the estimated value of the properties they are secured against, compared to 75 percent or 80 percent a few months ago.

Debt collectors are particularly wary of portfolios of mortgages that were taken out between 2005 and 2007 by young homebuyers or immigrants. "These are volatile buyers with low income, which makes it hard to recover the debt or the assets," explains one sector representative.

11 August 2008

Text by El Pais / Fernando Barciela / Expatica
Photo credits: Paraflyer and chrischappelear