European NPL Market Update 2025

Gifford West, Alpine Tremont

00:00 - 00:35

IntraLinks and Russell Reynolds specifically for organizing this event. We appreciate the sponsorship. Without them, this would not be possible. And um, I'm Gifford West, I'm the co-founder of Alpine Tremon. We're an advisory firm focused on distressed debt and non-core assets. It's my pleasure to have Andreas Hulio Rubio here, CEO and president of Intrum and possibly the smartest guy I know in the industry. Um, so, uh, without any further ado, we're going to dive straight in. Andreas, do you want to say anything before we start?

Andres Rubio, Intrum

00:35 - 00:41

No, I'd just like to say thank you to you, Gifford, obviously, for moderating this discussion.

Andres Rubio, Intrum

00:41 - 01:25

And thank you to Smith Novak. These get-togethers or these sessions are very valued, have been valued by me for a long time since I've been in this industry, probably longer than I'd like to admit. And I know that many people comment on their value and utility in hearing about the latest events and latest developments in the industry. So thank you to Smith Novak and to the sponsors for making this possible. But I think what we're going to do here, and I don't want to steal your thunder, is you're going to ask me a bunch of questions and we will have some opportunity for the nearly 300 people, which I understand are out there listening, to or at least registered to listen, that there'll be allowed some opportunity for some spontaneous Q&A. Is that right, Jeff?

Gifford West, Alpine Tremont

01:25 - 01:36

That is correct. So, Andreas, can you explain more about Intrum's efforts to become more capitalized, and secondly, to become an investment manager?

Andres Rubio, Intrum

01:37 - 02:53

And this dates back to I became CEO in 2022, and then during 2023 we took a very distinct change in direction for the company where we really wanted to focus on three pillars, one of which is the capital light that you mentioned. The first one is really becoming more operationally efficient. I'm sure we'll talk about that later in some of your other questions. Flipping the orientation of the company from primarily an investor who also does servicing to a servicer and really focusing on client, the 80,000 clients we service, the 130-40 billion euros of AUM we manage on behalf of our clients, really focusing on that. Then the third element is to transform our investment business into more of a capital-light investment business, an investment manager as you referred to it, as opposed to a proprietary investment platform. What does that mean actually? Historically, this business, this industry has been led by, not least ourselves, but many others who borrow at the corporate balance sheet from the wholesale markets and take that capital which they would typically historically borrow at, you know, mid-to-low single digits, and then invest it in MPLs, make the spread, less operating costs.

Andres Rubio, Intrum

02:53 - 04:32

That's been a wonderful business for many years. It's a difficult business to value and many of these people are public. But the issue with that business model is, particularly if you're already very large, which we were when I became CEO in the middle of 2022, is in order to grow you have to grow your debt stack. And you have to continually rely on access to the markets. And so the change we took to become more capital-light really has many meanings. It meant we wanted to de-intensify our use of our own capital per unit of invested capital. So for every investment we wanted to put in a part ourselves, but bring in third-party capital to invest alongside us. And we took a very important step just about a year ago to do that by selling a piece of our back book to Cerberus and also a few months later announcing an investment partnership with Cerberus. Now that is an interim arrangement with them. They're a very important partner of ours. They're one of our biggest clients. We're going to have a relationship with them going forward for many, many, many years. But eventually what we would like to do is really instead of having 3 or 4 billion Euros and 100% funded by our own capital, our own debt capital, what I'd like to have is 2 or 3 billion Euros, which right now we're a little bit above two, so I'd actually like to increase my book a little bit. And then ultimately have maybe 6, 7, 8, 9, 10 billion of total investments with the difference being funded by third-party capital. And what that means is you can go into the market, invest in different asset classes and invest in different markets in scale without having to grow our debt stack. And what we do as a result of that is we really want to become an investment manager so that we invest our portion of it.

Andres Rubio, Intrum

04:32 - 05:06

We get investment management fees, either upfront fees or ongoing portfolio management fees, or backend performance management fees on the capital is provided by the third party. And then we also get the totality in our servicing business. So it's a very positive virtuous cycle, if you will, in that we can scale up without scaling our debt stack. But also we can scale up and benefit directly our servicing business, which is why it's very important for us to be both and we believe we are the biggest servicer as well as the biggest investor in Europe in this asset class.

Gifford West, Alpine Tremont

05:07 - 05:17

So the pivot was driven more about making the business more manageable and stable in the long term, a better platform for growth.

Andres Rubio, Intrum

05:19 - 06:00

And also, I think it's just easier for our key stakeholders, being our bondholders and our shareholders, to value them. Because how do you value a business that needs to continue to invest and is only making a spread between your debt cost and your investment IRR? It requires capital to create capital, requires continuous capital reinvestment. How do you value that? That should be really a book value, a multiple of book value, whereas if you have a business that has a balance sheet, a balance sheet foundation to it, but has a big amount of third-party capital, AUM, and makes fees that don't require capital to create capital, that's much more valuable. That's going to be valued long-term much better than just a proprietary investing business.

Gifford West, Alpine Tremont

06:02 - 06:24

I think I understand. The pivot definitely is, if I was an investor in it, the pivot definitely makes a lot of sense. When you're out pitching yourself to potential clients, both as an outsourcing solution, as well as someone to manage or co-invest with, you know, it's a big industry. You're the biggest player. Other than being the biggest player, how do you differentiate yourself?

Andres Rubio, Intrum

06:26 - 12:08

We're the biggest, as you say, but we're not—I mean, I've always said historically, we can't sit here and say because we're the biggest, we're the best. No. We're the best for other reasons. And what's interesting is when we go to a client, what is the customer value proposition? What do we sell ourselves on? And why do people choose to work with us? I'll start with the servicing and then go into investing. But on the servicing side is, we've had the longest history operating. We're over a hundred years uh in Sweden, over 125 years in Norway. In many of these markets, we've had a very, very long and large commitment to the markets, which means we have a track record. We are well-established in managing similar assets. We have a lot of data around those similar assets. So the fact that we have a long-term commitment to doing this. As a result, also, we believe we can probably predict the expected remaining collections from any pool of largely or predominantly unsecured consumer loans than anyone else. We can probably predict that better than anyone else, and we can actually, we have the best track record of uh extracting value from granular NPLs across Europe and in these markets in large scale. We also uh are extremely customer-friendly in that we try to provide a basic product and customize to the degree necessary to make sure that our largest clients actually feel they're getting uh the exact product they need. We're also very value-based. And what I mean by value-based is historically our industry's evolved coming out of the banks, and historically in some markets, uh still even today, we have been merely an outsourcer of actions or an outsourcer of individuals. And that individual does the same thing he or she would do internally in a company than externally. And it's really about actions, like you need to make this many phone calls, or you need to have this many people working our portfolio. That is something I think I'd like to get away from. And what we've tried to do at interim over the last year and a half is really focus on outcomes as opposed to actions. And what that means is if we recover more, we want to get paid more. I was with a client this morning here in Sweden. And, you know, historically they've said, you know, we we are very comfortable paying for performance, which was music to my ears. So they'll pay us for outperformance, they'll pay us for expected performance. As a consequence, to be symmetrical in that we are also going to get penalized for underperformance. So we've focused on delivery. And just let us focus on delivery and pay us for delivery, which historically has not always been the case in all these markets. And then finally, the big one big factor, and I'm sure you're going to ask me more on this is it is a big commitment for uh a bank uh or a large entity to take their customers who happen to be behind on paying them and handing them over to a third party. It does have franchise implications. So therefore, our ability to say that we've been doing this the longest, we know the best, we have the best reputation, etc., etc., is valuable. But it also extends to the regulatory domain in that regulators, they are taking regulatory risk. Um and as as I'm sure you'll ask me in a little bit, there is much more regulation in our sector than there was even just last year or two years ago. Uh and as a result of that they're taking regulatory risk. So they look at us as a very safe set of hands. They look at us also as, and this is where size does come into play, we have the greatest aggregate investment in compliance, uh and uh and legal and regulatory uh uh affairs across the industry. What does that all sum up to? Um number one, since I joined in 2022, um we were winning maybe 30 to 40% of our RFPs on the servicing side. Today we win in excess of 50, 55. I'll highlight that none of the factors that I just mentioned are priced. We are never the cheapest. So I'm very happy that we are successfully starting to turn around the mentality of our clients to focus on value and mitigating their risk and getting the maximum return on their assets as opposed to always looking for commodity-like actions at the cheapest price. And frankly, the entire industry should want to focus that way or move that way. So that's on the servicing side. On the investment management side, it's still early days. We are partners with Cerberus, as I said earlier, but we're also talking to many institutional investors. Ideally, we would have more limited partner-type capital. And there, it's very simple. You are getting unique access to an asset class that you can only gain access to through an industrial partner like ours, like us. Otherwise, it's very difficult to access this inside. You're getting access to a granular asset class where risk is distributed thanks to that granularity that provides a very consistent mid-teens unlevered return through the cycle. That's incredibly valuable. You look at big sovereign wealth funds or pension funds to guarantee them a in worst in the most competitive times, 11, 12% IRR. In the better times like now, maybe 15, 16, 17% IRR, unlevered over long term, and it can be it can be um continual access to it because you're partnering with us. And we have the biggest footprint. We can originate, we can price, and we can extract value from the greatest amount of NPLs across Europe. It's music to their ears. And so that we have and we have an 18-year track record of investing only a few tens of billions to not to investing over a billion where we've consistently collected above our underwriting forecast. So all of those elements for any of us involved in uh investment management, and I have been for most of my career, they ring extremely true to large pools of capital who are looking to cover their liabilities over the long term. And it's a new thing. It's not a typical offering in the investment management world where you're not a hedge fund or a private equity fund. With all due respect to hedge funds and private equity funds, we're unique and that we're an industrial partner that can provide a real financial return and access to an access to an asset class that otherwise they couldn't get.

Gifford West, Alpine Tremont

12:09 - 12:38

Good answer. Going back to the first half of the question, which was talking about, you know, what differentiates you when you're talking to outsourcing, you talked about institutional knowledge, data, experience, and so forth. That's sort of a natural segue into AI and how it's impacting the market. You know, if you have all this data, suddenly AI is sort of the quantification or the mining of that experience in a formal manner. How important do you see AI going forward?

Andres Rubio, Intrum

12:38 - 16:17

Well, listen, as many people know, and I've talked at both publicly in our own announcements, but also at some events, we bought an AI company about a year and a half ago, a company called Affluent in the UK. At the time we did that, we knew the general direction was that there was going to be more and more technology, more and more automation in our sector. I have to say that the space has moved so much faster than any of us realized it would. And it touches everything in our business. Just to give people a sense of our operating platform, we have about 5,500 people in 41 call centers. Excuse me, call centers. We have uh we take 160 plus or minus million actions a year, which is sending an email, sending a text, making a phone call that we connect, not just making a phone call, actually a connected phone conversation, sending a physical letter which in some cases we need to do, doing other things, uh initiating legal, etc., etc. So, when you think about all of those actions, what's very interesting is there's two two um there's two dynamics to incorporating technology. Uh one is automation and efficiency, the other one is efficacy. How good are you at collecting? On a pure efficiency, we of the 160 plus or minus actions, more than 50% are simple things like sending a text, an email, or handling a phone call which is less than 3 minutes long. All highly automatable, particularly now with AI, and with a generative AI, which didn't even exist a year ago. We're already using it in Spain with real estate and we're using it in other markets. It's completely It's a complete game changer, I'd give for then what it means is that and and you know, the the people get nervous about this because they think, well, that just means you're going to cut costs. And you're But I look at it a little differently. I think we have 5,500 people who take 160 actions with the right technology, and even assuming we don't cut anyone, which obviously we would want to be more efficient, but just to assume no, we could probably take 500 million actions or 600 million actions or 700 million actions. We could take a lot more actions with technology with the same human resource intensity or the same human resource base, but lower human resource per action. The other element is efficacy. The right action to take with Gifford, uh West or Andres Rubio: Is it to make a phone call? Is it to send a text? Is it to send an email? Is it to do it in the morning or the evening, etc.? These models of, you know, right party contact as well as what's the right uh next what's the highest NPV next action to take for an individual, not a cohort, an individual given your profile. Those models already exist and are only going to get better with the data that we have. And so there what you see is we're going to be much better with fewer actions per unit of collection. When you combine the two, being able to take more actions and then being able to collect more per unit of action, our ability is to deliver something with technology that we've never seen as an industry. We can collect more for the clients, we can do it cheaper, so deliver more for our shareholders, and in the meantime we can give our customers a better customer experience. Because as we've said, and I said last quarter in our last customer survey across 20 countries in Europe, more than half the people who we deal with prefer to deal with technology, be it a bot or be it a website, than deal with a human being. You know, this industry still very intensively makes phone calls. That I think is going to be happening less and less going forward. So, it's To answer your question, I could talk about AI for the entire time we have today. It's touching everything and it's changing everything we do.

Gifford West, Alpine Tremont

16:17 - 16:31

Interesting. Will AI be a competitive advantage to you, or will the tools in turn make it easier for smaller players to compete with you?

Andres Rubio, Intrum

16:31 - 17:56

It's the absolute right question. My view is that we're in a we as a company, but also as an industry a bit, we're at a kind of Sputnik or Kodak moment. You know what I mean is we have a massive opportunity. Our competitive advantage today is that we have the biggest commercial footprint. We also are quite advanced in technology, and this industry has not been the most advanced technologically. And I think we have an opportunity to really take the next step because the creation of a collections activity platform has never been cheaper, has never been easier. What that means is a small party can recreate that, or a client itself, if it has sufficient size, can recreate our activity. If we don't take advantage and create the best possible product with the highest level of technological intensity, given our commercial footprint now, we will lose part of our commercial footprint going forward. In an extreme example, just to scare people a little bit, we could become Kodak in two or three years. If we don't adapt, if someone doesn't adapt in our industry to technology, they're going to become Kodak; they're going to be effectively redundant. What we have as the opportunity is to really be on the front end. Most of our clients are not going to use this because our activity is not their core activity. They'll use AI in their core activity first. So we have a window here of time where we can really take advantage and gain even more market share. Actually increase the externalization of the collection activities against unpaid claims, as opposed to actually having it go in in-house more through the use of technology.

Gifford West, Alpine Tremont

17:56 - 18:08

Just one last question on AI. You talked about the entire time, where where do you get the talent? In other words, that's that's going to be some of those special people.

Andres Rubio, Intrum

18:08 - 18:48

That's the biggest challenge. Alphaleos, for example, has 60–70 people. They're a startup in Shoreditch in London. They're great, they're amazing. They are now having to roll out their product in all 20 of our countries. By the end of this year we'll be in seven or eight countries that represent 60% of our revenue. But they have to grow up and they can't just be this small startup that's fast and nimble. They actually have to be able to accept millions and millions and millions of cases on a monthly basis. You need software engineers, you need business people who are more tech-savvy. Some of whom exist in some of our markets, most don't. So you need to go get it in other industries. And the

Andres Rubio, Intrum

18:48 - 18:56

The quest or the challenge of finding talent is the greatest obstacle we need to overcome.

Gifford West, Alpine Tremont

18:58 - 19:18

Switching over to more of the practical side, stage two loans, where do you see that going? Are we at the beginning of a disaster or is it going to stabilize? Where are we going? It's something that I get asked this question constantly.

Andres Rubio, Intrum

19:18 - 21:21

And I've been asked it for many, many years. No, no, no, no, no, no. It's obviously directly related to our industry because if we don't have assets to manage, we don't have an industry, we don't have revenues. Um, Stage two loans had a big increase from 2019 to 2020 up to about a year and a half or two years ago. Uh up to 10% of all loans practically. It's still it kind of topped out around 9.8, 9.9, around the 10% level. Um a lot of them do not become NPLs. The vast majority do not become NPLs, but it's something that banks particularly still need help with. And that's another both challenge for the banks, but opportunity for the industry in that the conversations I have with really senior people at banks is not just about NPLs, although very small movement in in NPL ratios lead to big movements in the overall NPL pool. And there's 450 to 500 billion in the banking system. Not to mention what's with investors. So there's hundreds and hundreds of billions of NPLs in the system that we need to manage. Um and just because it leaves the banking system doesn't mean it goes away. It still needs to be managed. If it's owned by an investor, it still needs to be managed. That NPL doesn't go away until it's reabsorbed by the economy. And we are the only ones who we and people like us are the only ones who can actually make sure that that happens. So I think that's a little bit of a misunderstanding in that 440 or 450 billion that's in the banking system, that's not the only NPL pool. But going back to your question, when I talk to senior people at banks, they're not necessarily they're worried about NPLs, but that's the easy part because that's unpaid, you have to collect, etcetera. What they do is with pre-NPLs is their big challenge. How do they deal with customers who may have a problem or are already identified as having some kind of a credit problem and will they go bad or not go bad? How do you deal with that client? They're not used to dealing with a client like that. They're um and in many different markets they call it unlikely to pay, etcetera, etcetera. And it's obviously different how concentrated or in concentrated larger positions or in smaller consumer unsecured positions. But dealing with them is very critical because when if when you think about it, it's a little bit counterintuitive, but we deliver much more valuable to our client, much more value.

Andres Rubio, Intrum

21:21 - 22:07

If we help someone who would have gone into an NPL to not go into an NPL, that's much more valuable to our clients. That means they don't have to actually write it down, they don't have to provision it, they don't have to outsource it. They've saved something. Well, that's value that we can help them with, given the nature of our activity and dealing with individuals and providing them solutions that we need to get paid for. And we're doing more and more of that. That's different than investing in UTPs, to be clear, which is a very different animal. That's more a capital risk-weighting arbitrage game. But from a servicing standpoint, that is where senior people who are dealing with the balance sheet and thinking about cost of risk, which is what we help them manage, that's where their focus is, not necessarily on the NPL ratio. I don't see massive amounts of stage two loans at this point in the cycle going into stage three. I don't see it.

Gifford West, Alpine Tremont

22:08 - 22:23

Okay. So, there's an outsourcing opportunity. It's not capital intensive because the banks are outsourcing it, and you're able to bring all of these tools to the table that they may not have themselves. You've got better scale. Is that Yeah, and there's a half of it

Andres Rubio, Intrum

22:24 - 23:02

That's that's the gist of it. There are some specialist players, and particularly in some markets where it's more common to deal with pre-empts. Italy is a good example, both on the servicing side and on the investing side. They're probably the most advanced in using kind of financial technology and outsourcers as partners in mitigating the impact of stage two loans, uh the accumulating of stage two loans. Spain is a good example. Other markets not as much, actually. But yes, it's an opportunity as you described it. It's an opportunity for us to provide value to our clients, broaden what we actually provide to clients, and in the right places at under the right terms, potentially invest in these loans.

Gifford West, Alpine Tremont

23:03 - 23:45

So, if if we've talked about a couple of different trends. One, you know, going back a few years ago, we had the concentration of the industry. Then we had the sort of trying to make the industry more capital light. Um, then we have AI, then we have regulatory, which is both how you treat customers and data protection. You know, net-net is this in your favor towards winning outsourcing clients, or does it cause the banks to sort of hold their heads in their hands and say, "I'd rather, you know, how can I how can I get through all the hoops of, you know, data protection, uh AI, treating customers fairly, etc., etc.? Is it The more complex

Andres Rubio, Intrum

23:46 - 26:19

The more complex it is, I didn't mean to cut you off there, the more complex it is to collect, be it because you need technology or because you need to fit within certain regulatory regimes. Now with the MPL directive in almost every market we operate in, because you need to figure out and deal with your clients the right way, data protection, etcetera, it benefits us tremendously. I think that is going to underpin an increasing outsourcing of these things over time, just because MPLs always exist. Sometimes they exist in higher numbers, sometimes they exist in lower numbers. The need for the industry, be it banks with loans or local businesses with unpaid claims, to need someone to assist them with recovering, always exists. And I think all these trends are fundamentally doing two things. They're going to increase the outsourcing opportunity and the outsourcing flows. They're also helping the industry become more of a proper industry. We largely speaking were in-house large-scale collections and real estate management entities that were outsourced and sold and externalized after the crisis. And then small consumer unsecured consumer investors and servicers in the north of Europe and in the UK. That was the industry 15 years ago. Today, it's integrated, it's sophisticated, it has a regulatory component to it, it has a large-scale component to it, it has a technological component to it. I mean, this industry historically has not been the most operationally advanced, as I said at the beginning questions. It's now becoming that. And the more of a proper industry where we deliver value, a sophisticated product which delivers value, the better for the industry. Because the industry frankly, and you see it in some of the valuations of the publicly traded, including our own, the publicly traded platforms, you know, the markets aren't entirely clear how to value us and that's because are we really an industry or are we just a run-off of a bunch of assets that were externalized that are coming down? I want to be of a occurring industry, which is why I want to focus on servicing and increasing servicing. Our AUM has grown significantly over the last two years in servicing. I want to focus on being an investment manager, which means I can scale up our investment management business without scaling up my debt stack and create fee income. And I want to focus on being more technologically um and delivering our services with a much greater level of technology and less human resource intensity. So if we do that over time, we're creating a much more valuable income stream for our shareholders, and that'll be reflected in the valuations of us and the industry as a whole, I believe.

Gifford West, Alpine Tremont

26:19 - 26:24

Yeah, and you're also talking about extending yourself earlier into the life cycle of a troubled credit.

Gifford West, Alpine Tremont

26:25 - 26:34

which is a far more stable income because you're not, you know, they don't have to become distressed for it to become a fee potential for you.

Andres Rubio, Intrum

26:34 - 27:39

I think we can expand both earlier and later. I mean, I think we can do things earlier and kind of helping them navigate whether their stage two loans or things that might become NPL. We already deal with real estate, which on the secured side is an end product. It's the next stage in the recovery of value for our clients and we need to manage and sell that real estate. Also, very, very old loans. With technology, if you think about it, we have what we call in our internal nomenclature, debt surveillance, which is really, really old claims that basically sit there and we don't do a whole lot because it doesn't make sense to do a whole lot if you're have an expensive legacy, human resource intensive collection platform. But with technology, it is ultimately, we can with very little marginal cost stimulate those old claims and get something back for our clients. So, I think ultimately going earlier is going to be the near-term trend, but also applying technology to the older claims and making sure that we fully incorporate technology into legalization and secured are also opportunities that are more later stage in terms of an unpaid credit or an impaired credit.

Gifford West, Alpine Tremont

27:40 - 28:13

That's exciting. Uh just a reminder to the audience, there is a Q&A chat box if you want to ask questions. We've got about 5 to 10 more minutes to go. We'd be happy to take a look at uh questions. So, what about the secondary market, which is near and dear to my heart? Because if you're getting if you are managing it and you are outsourcing it, will anybody ever do a secondary trade ever again? And is it fortunate that I'm focused on, you know, commercial real estate and residential sector? Yes. The secondary market

Andres Rubio, Intrum

28:13 - 29:53

We will always exist. You will have different elements. The buyers of these are shifting a bit. A few of our direct competitors on the investing side have gone through some financial troubles. Some are scaling up, some are scaling back. They're long-term players. Some are remaining basically consistent. So, the shift in the traditional buyers of these assets are going to is going to shake out. And yes, in the context of that shift, we have sold assets to other MBL buyers and they have sold assets to us. The secondary market particularly adds when people go undergo changes like we have, there's some of that. There's some of that. There's a tactical element too. Near term, so and so needs liquidity, wants to sell down a little bit, then wants to scale up next year. We'll buy from someone else. And then there's the international players. You got very large players. Servus is one of them. My old firm Apollo as well is one of them, etcetera, who are going to be in this space. But then there's a lot of new entrants who then ultimately turn around and go back to New York or Asia or wherever they are at in time. That happens often. And what that leads is an increase in primary activity and then later on, an increase in secondary activity. It's always going to exist. Ultimately, what I sit down and I gain, you know, kind of a lot of comfort with, is the fact that we are uh the first or second largest in in all 20 of our markets. We have a lot of data. We have an ability to predict the return on these assets. So, if we're buying them, if we're managing them on behalf of a corporate, or if we're buying them on a primary basis from the originator, or if we're buying them in the secondary market, we're going to know what that with a very little margin of error, what the expected remaining collections will be from whatever pool is presented to us.