Webinar Summary
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European NPL Market Update 2025, 5th March 2025
Executive Summary
- Andrés Rubio, Intrum outlined Intrum's strategic shift towards a capital-light model, transforming from primarily an investor to a servicer and investment manager, with plans to increase third-party capital funding and focus on earning investment management fees.
- Intrum's competitive advantages stem from its extensive market experience, superior data analytics, and customer-centric approach, resulting in increased RFP win rates and consistent mid-teens unlevered returns in NPL investments.
- The company is leveraging AI and technology to dramatically improve operational efficiency and efficacy, with potential to increase actions from 160 million to 500-700 million annually, while also adapting to evolving market trends and regulatory landscapes in the NPL and pre-NPL servicing sectors.
Introduction and Background
- Event organized by IntraLinks and Russell Reynolds, with sponsorship from Smith Novak
- Moderator: Gifford West, co-founder of Alpine Tremon, an advisory firm focused on distressed debt and non-core assets
- Main speaker: Andrés Rubio, Intrum (Andreas Hulio Rubio), CEO and president of Intrum
- Intrum is positioned as the largest servicer and investor in Europe in the NPL asset class
Intrum's Strategic Shift
Becoming More Capital-Light
- Strategic change initiated in 2022 when Andrés Rubio, Intrum became CEO, focusing on three pillars:
- Becoming more operationally efficient
- Shifting from primarily an investor to a servicer, focusing on 80,000 clients and €130-140 billion of AUM
- Transforming the investment business to a more capital-light model
- Goal: Reduce reliance on corporate balance sheet funding for investments
- Partnership with Cerberus established, including selling a piece of Intrum's back book and announcing an investment partnership
- Aim to increase total investments to €6-10 billion, with the majority funded by third-party capital
Transformation to Investment Manager
- Shift towards earning investment management fees (upfront, ongoing, and performance-based) on third-party capital
- Strategy allows scaling up without increasing debt stack
- Benefits servicing business directly, creating a virtuous cycle
- Makes the business easier for stakeholders (bondholders and shareholders) to value
Competitive Advantages and Differentiation
Servicing Business
- Long history and commitment to markets (over 100 years in Sweden, over 125 years in Norway)
- Extensive data and track record in managing similar assets
- Superior ability to predict expected remaining collections from unsecured consumer loan pools
- Customer-friendly approach, offering customized solutions for large clients
- Focus on value-based, outcome-oriented services rather than action-based pricing
- Largest aggregate investment in compliance, legal, and regulatory affairs across the industry
- Win rate for RFPs increased from 30-40% to over 50-55% since 2022
Investment Management
- Offers unique access to NPL asset class through an industrial partner
- Provides consistent mid-teens unlevered returns through the cycle (11-12% IRR in competitive times, 15-17% IRR in better times)
- 18-year track record of investing over €1 billion with collections consistently above underwriting forecasts
- Ability to originate, price, and extract value from the largest amount of NPLs across Europe
Impact of Technology and AI
Efficiency and Efficacy Improvements
- Intrum acquired AI company Affluent in the UK about 1.5 years ago
- AI is impacting all aspects of the business, moving faster than anticipated
- Current operations: 5,500 people in 41 call centres, taking 160+ million actions per year
- Over 50% of actions (texts, emails, short phone calls) are highly automatable with AI
- Potential to increase actions from 160 million to 500-700 million with the same human resource base
- AI improves efficacy by determining the best action to take for individual customers
- Customer preference: Over 50% prefer dealing with technology (bots or websites) over human interaction
Competitive Implications
- Andrés Rubio, Intrum views this as a "Sputnik or Kodak moment" for the industry
- Intrum has an opportunity to leverage its commercial footprint and advanced technology
- Risk of becoming obsolete if the company doesn't adapt to technological advancements
- Window of opportunity as clients focus on AI in their core activities first
Talent Acquisition Challenges
- Finding and retaining AI talent is the biggest challenge for implementing these technologies at scale
- Need for software engineers and tech-savvy business people, often from other industries
Market Trends and Outlook
Stage 2 Loans and NPLs
- Stage 2 loans increased from 2019 to 2020, peaking at around 9.8-9.9% of all loans
- Currently, 450-500 billion euros of NPLs in the banking system, with additional NPLs held by investors
- Andrés Rubio, Intrum does not foresee massive amounts of stage 2 loans moving to stage 3 at this point in the cycle
Opportunities in Pre-NPL Servicing
- Banks increasingly focused on managing pre-NPLs and "unlikely to pay" situations
- Opportunity for Intrum to provide value by preventing loans from becoming NPLs
- Italy and Spain are more advanced in using financial technology and outsourcers for mitigating stage 2 loan accumulation
Regulatory Landscape
- Increasing regulation in the industry, including the NPL directive in most markets
- Regulatory compliance becoming a key differentiator for service providers
- Complex regulatory environment likely to increase outsourcing opportunities
Market Trends and Outlook
Industry Evolution
- Debt collection and credit management industry becoming more sophisticated and technologically advanced
- Shift from in-house collections to integrated, sophisticated external service providers
- Industry developing regulatory, large-scale, and technological components
Expanding Services
- Plans to expand both earlier and later in the lifecycle of troubled credits
- Earlier stage: Helping navigate stage 2 loans and potential NPLs
- Later stage: Managing and selling real estate, applying technology to very old claims ("debt surveillance")
Secondary Market Dynamics
- Secondary market for NPLs expected to continue existing
- Shift in traditional buyers due to financial troubles and strategic changes among competitors
- Opportunities arise from international players entering and exiting the market
- Intrum's advantage: Extensive data and ability to predict returns on assets across various acquisition scenarios