The combination of US GAAP provisioning rules and the ability to transfer risk (financial and reputational) to a third party has fuelled the US market over the last two decades. However, in recent times the mood in the US debt sale market has changed significantly. The newly formed and highly influential financial regulator, the CFPB, has the debt sale market firmly in its sights and is intent on ensuring that creditors do not transfer their obligations to individuals to a third party through debt sale. As creditors are forced to review their approach, supply is being restricted. In addition, many of the larger purchasers have seen their funding costs decrease dramatically over the last 18 months enabling them to actively bid-up the price of assets. In short, a bubble is being created in the US market.
For US debt buyers these are troubling times. Many of them are now looking for alternatives to hedge their US position and it appears the most likely outcome is that those who are not already active in different geographic markets will look to diversify over the next 12 months. The obvious first step is the UK market. Whilst debt sale is competitive in this market, the US players have a crucial advantage; their scale dwarfs the current UK incumbents and as a result they have unrestricted access to significant funding at extremely low cost. One significant US buyer recently commented, “… buyers are increasingly looking towards European markets, especially the UK, to protect existing revenue streams and potentially drive future growth.”
For years many of the debt sale techniques and processes we now take for granted in the UK were originally conceived and rolled out in the US. It now looks as if we’re about to gain a little more from across the Atlantic – in the shape of many more players.
By Stuart Bungay, Managing Director - Strategy, Marketing and International, TDX Group.