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Pressure mounts on banks to shed bad property loans

Reuters
People walk past a Royal Bank of Scotland (RBS) building in the City of London January 12, 2012.

People walk past a Royal Bank of Scotland (RBS) building in the City of London January 12, 2012.


(Reuters) - Europe's banks face growing pressure to offload bad property debt as the economic outlook worsens, capital rules get tougher and private equity firms take a hard-headed approach to the value of loan books bought from lenders like Royal Bank of Scotland.



Banks have never fully recognised the true fall in value of property in the wake of the financial crisis, hoping rents would continue to cover loan repayments. That position is now less tenable.

Last December, a fund run by private equity group Blackstone bought a portfolio of 30 property loans worth 1.4 billion pounds from RBS at a 30 percent discount. As many as half a dozen of these are likely to be in default within two months, setting a possible precedent for other sales, two sources familiar with the deal told Reuters.

"Like ostriches, banks have had their heads in the sand but private equity firms are not part of that club," one of the sources said of the Blackstone deal. "The defaults will be like the grown-ups arriving home during a kids party to ask 'what's been going on here?'"


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