Banking, Lending and Real Estate by Scardovi Claudio;Bezzecchi Alessia;

Author:Scardovi, Claudio;Bezzecchi, Alessia;
Language: eng
Format: epub
Publisher: Taylor & Francis (CAM)
Published: 2019-02-26T16:00:00+00:00

5.8 The independent CWO as a JV

As mentioned, different governance options are available for the set-up and development of a CWO and active real estate management unit (or units). In practice, multiple servicer and asset models can be pursued, as owned by a banking group or by third parties, or as a mix of the two. Of the many options already introduced, it is worth to consider and further comment on few of them regarding the execution of a JV with a partner. In a first “all bundled” option, both the servicing capabilities and the assets of the bank (or parts of them, and associated liabilities) are contributed to a dedicated, separate legal entity, and usually requiring a “mark-to-market” for the transaction at day one – something like what in restructuring parlance is called “bad bank.”

This “bad bank” could then be sold to a financial/industrial third party, in its entirety or as a minority or majority share to ideally reach regulatory and accounting deconsolidation, whilst still retaining some of the upside on the assets and fee income business of the servicer (and some access and control to the critical information and intelligence being produced by its ongoing management).

Alternatively, the bad bank could be deconsolidated whilst allowing the bank’s shareholders to retain their full exposure on the asset and servicer business via a de-merger, usually realised via a stock split (the existing bank shareholders receive two stocks in exchange of the current one: a share representing their ownership into the newly created “bad bank” and a share representing their ownership in the remaining “good bank”). That would also allow to keep the bank stock (stocks) listed. Each shareholder will then could retain both shares or divest one of them (reinvesting the proceeds on the other) or else, allowing a better realignment between their risk appetites and the risk/return profiles of the invested assets (of the bad and good bank listed).

An “unbundled” model will instead consider the servicing business and asset portfolios as different and to be contributed to different legal vehicles, hence allowing a larger number of options, coming from the different possible permutations of the two, and a more segmented approach to the development and execution of alliances and partnerships with financial or industrial partners.

A specific case worth discussing further is considering an overall alliance with two counterparts (often with one – financial – controlling the other – industrial). For this case, the bank seeks a specific industrial partner for the servicing unit (units) (in case the bank is also considering a further split between the loan workout activities and the real estate active management ones), able to contribute experience, relevant technology and people and potentially facilitating the access to the open market, to develop the platform as a for-profit business.

This industrial partner is typically an existing, fully independent (i.e. not bank’s owned) CWO unit (or a real estate service company, for the property active management component) that is committed to contribute relevant assets (most of them intangible). It will

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