LONDON Dec 10 Bank of America Merrill Lynch is emerging as one of the biggest buyers of loans from deleveraging European banks, which have been selling loan portfolios to raise capital and comply with stress tests, tidy up their balance sheets and refocus on their client base.
The US bank has bought at least 7.3 billion euros ($9.44 billion) of loans since late 2011. It has held on to some of the assets in a strategic move to deepen client relationships and sold the remaining loans at a profit to end investors.
"Bank of America is by far one of the biggest buyers of debt out there," a trader said.
The US bank has been on a buying spree to deploy more than $100 billion of surplus capital that it has raised since Lehman Brothers collapsed in September 2008 and has profited from European banks' need to sell large portfolios quickly.
Portfolio sales are a direct result of the financial crisis and have not been seen on this scale before. European banks have had to change their approach to how quickly they divest assets and realise losses to give better visibility and accountability on their equity base to shareholders and regulators.
BofA Merrill has targeted performing and non-performing bilateral loans, revolving credit facilities, trade finance, structured trade finance facilities and Export Credit Agency-backed loans from a wide range of sellers, including French, UK, Spanish, German and Italian banks.
The bank has faced stiff competition from other interested buyers, including Citigroup and Barclays and hedge funds and other institutional investors, but has managed to buy several portfolios through its ability to buy the loans quickly and in bulk, rather than on a single name basis.
BofA Merrill bought a $1.2 billion portfolio of Latin American loans from Royal Bank of Scotland in late 2011. Purchases this year include a 300 million euro-equivalent portfolio of loans from Allied Irish Bank in early 2012; a 4.2 billion euro-equivalent portfolio of loans from French bank Societe Generale and a 2.5 billion euro portfolio of loans from Banco Santander.
The bank is also considering buying a 2 billion euro portfolio of loans from Ireland's state-backed Irish Bank Resolution Corporation - the former Anglo Irish Bank - if the portfolio goes for sale.
BofA Merrill has a team of 140 analysts to assess the credit quality of each portfolio, which allows the bank to price and execute large portfolio sales quickly in one or two weeks.
European banks have broken the stigma of refusing to sell loans at a loss and are now managing portfolios more activity as they retreat to core markets, redefine strategy and relationships, manage country exposure or because they have been forced to by regulators. ($1 = 0.7735 euros) (Reporting by Tessa Walsh and Claire Ruckin; editing by Christopher Mangham)