World Economy

Europe Banks Eye Loan Markets

Europe Banks Eye Loan MarketsEurope Banks Eye Loan Markets

European banks may soon find a new way to earn money from markets that were set up to bypass them.

Booming peer-to-peer lending platforms, such as Funding Circle and Zopa, are coming into focus as investment bankers seek new types of debt to spur Europe’s moribund issuance of asset-backed securities, Bloomberg reported.

The region’s first sale of bonds tied to loans made via these online services could be just months away, according to Royal Bank of Scotland Group Plc, Moody’s Investors Service and Banco Bilbao Vizcaya Argentaria SA.

“I do expect to see the first European peer-to-peer deal this year and it will almost certainly come from the UK,” said Aaron Baker, a London-based BBVA credit analyst. “A multitude of funds are being built in order to invest in these products and banks are looking at how to provide finance to the sector.”

The potential for securitization underlines growth in peer-to-peer financing, which has been fueled by investors seeking higher returns and borrowers being less able to get loans from banks. Morgan Stanley expects peer-to-peer loans in the UK, by far Europe’s largest market, to total £15 billion ($21 billion) a year by 2020, a 10-fold increase from 2014.

Securitizations will be driven by hedge funds and other institutional investors looking to sell loans made via peer-to-peer services, rather than platform operators. A UK fund managed by Eaglewood Europe has previously said it may pursue a deal. KLS Diversified Asset Management is also a candidate, according to BBVA’s Baker. The New York-based investment manager agreed to loan £132 million through Funding Circle in 2014.

 US Securities

In the US, more than $8 billion of securities tied to peer-to-peer loans have been sold since 2013, according to Morgan Stanley. Investors may favor securities over making or buying loans directly because notes can be easier to trade, and because they can have credit ratings, said Sachin Patel, global co-head of capital markets at Funding Circle and a former Barclays Plc banker. Some funds can only buy rated securities.

Peer-to-peer, or marketplace, loans are unlikely to be enough to revive European issuance of asset-backed securities, which remains well below the pre-crisis peak. The collapse is due to a regulatory crackdown on the notes, which were blamed for stoking a credit bubble. Only €8.4 billion ($9.2 billion) of new notes were sold this year through Feb. 26, the least for the period since 2011, according to JPMorgan Chase & Co.

“Investors do have appetite to invest in marketplace-lending securitizations because they give exposure to the real economy and might offer higher yields,” said Monica Curti, a senior analyst at Moody’s. “However, any future issuance from alternative lending providers will remain very small.”