November 7, 2012 / 6:30 PM / in 5 years

Private equity hunts for Europe bank deals

* Apollo, Carlyle see opportunities in loans, units

* Cerberus, Oaktree also speak at conference

* Apollo’s eyeing Spain, Germany, UK assets

By Christian Plumb

PARIS, Nov 7 (Reuters) - Apollo Global Management, Carlyle Group and other major private equity firms said European banks’ need to unload trillions of euros in debt and business units could create key opportunities in coming years.

European banks have some 56 trillion euros ($71.4 trillion)in assets on their balance sheets, about 38 percent of which are not funded by deposits, said Olivier Sarkozy, head of Carlyle’s global financial services team.

Banks are retreating from non-core businesses and divesting portfolios of loans in preparation for stricter regulation, creating deals for private equity houses and so-called “vulture” funds looking for assets at bargain prices.

“That is causing the banking system to have to right-size back to where it should have always been,” Sarkozy, the half-brother of former French President Nicolas, said at a private equity conference in Paris.

He estimated that European banks would need to “find a home” for between 25 trillion euros and 30 trillion of assets over time, calling it an “enormous problem” for the industry.

It also represents a potential bonanza for firms including Carlyle, which earlier this year agreed to acquire French bank Societe Generale’s U.S. asset management unit TCW Group.

Carlyle believes there will be plenty more such opportunities, he said, noting the U.S. private equity group is focused on buying business units.

Others at the conference, including executives from Apollo, Cerberus Capital Management and Oaktree Capital Group, said they were more focused on loans, with banks particularly eager to unload consumer and real estate portfolios.

Still, it can be slow going and timing can be tricky.

“It’s not as if the banks have a ‘for sale’ sign out,” said Black, whose Apollo raised a 2.7 billion euro fund aimed at taking advantage of the banks’ needs to shrink their balance sheets.

Yet he added: “It’s clear that that deleveraging process is one that has to happen.”

Private equity firms have often found the road to European bank deals strewn with obstacles. A federal judge on Tuesday issued a tentative ruling that could block the TCW sale.

Earlier this year private equity firms Apax and PAI Partners were in the running to buy the brokerage business of French insurer Groupama’s GAN Eurocourtage unit, but ultimately lost out to Germany’s Allianz.

Black, who acknowledged that an initial European loan fund overpaid for some Spanish assets before finding its stride, told Reuters that Apollo sees Spain, Germany and the UK as being particularly ripe for bank loan deals for its newer fund.

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