When Europe’s biggest debt collector (and, secondarily, bad loan manager) is burned by his own debts, something has gone terribly wrong. Intrum may be the most unstable case, but it is not the only one.
The mainland’s debt collectors (which we have learned well over the last decade, with repeated and persistent phone calls to those who were late on loan and bill payments and without easily answering the phone themselves) have built a highly profitable business, since the non-performing loans were mountainous and because they themselves were able to borrow abundantly thanks to the extremely low interest rates and favorable prospects of their size. All of that suddenly disappeared.
France’s iQera and Britain’s Lowell are also two billing companies that have been under intense pressure, while shares in the industry as a whole have been hurt. Even the Italian giant DoValue, which is not facing Intrum’s adventures (and which is opening new operations in our country), has seen its stock fall 69% since the beginning of the year.
For Intrum the drop is 38% this year.
Red loans
Southern European banks – which were saddled with the largest volume of non-performing exposures – have largely completed the liquidations that once fueled NPL bonuses. They attracted investments from foreign funds, such as Apollo, Cerberus, PIMCO, Elliott and Lone Star.
At the same time, government support measures helped businesses and households recover. Thus, even the pandemic with the lockdowns or the acute energy crisis that arose as a result of the war in Ukraine and the West’s head-on conflict with Russia did not give rise to a new wave of non-performing loans.
Non-performing loans (NPLs) have remained at 1.8% of total bank loans in Europe for six consecutive quarters, according to the latest official data.
In Italy, the continent’s biggest bad market, sales last year totaled 31 billion euros, a third of the 2018 peak. At the time, almost all sales came from banks, with more than half of the total in 2023 being resales.
Interest rates
During the easy money era of the last 10 years, debt collectors borrowed billions of euros on the cheap, using the money to buy defaulted consumer loans at huge discounts to face value. They then went out and demanded as much of that money as possible, which netted them a large profit.
Over the past two years, rapidly rising interest rates, combined with reduced consumer spending and rising inflation, have undermined that model and spooked bondholders of Intrum, Lowell and other companies. Rising interest rates mean companies face expensive refinancing costs for the billions of euros in high-yield bonds that have matured.
Debt collectors don’t really have any good options: they can try to find other sources of financing, eliminate or reduce dividend payments to shareholders, or limit new portfolio acquisitions. Each of these options creates its own problems.
To give you an idea of how much its charges increased, in the golden times Intrum borrowed from the market at 3% interest. Having seen his credit rating fall into the junk category, he sold a bond with a coupon of 11.875% a few months ago, in June. Some of its bonds were then trading at prices as low as 74 cents per euro.
It was a party and… it’s over, one would say, or as Reuters commented in a recent article, Europe’s box office “went from a Luculian meal to a famine”.