You are correct Ben79, I didn't mean to imply that a bank will make an overall profit on selling these. Perhaps the wrong choice of words. Rather the opportunity cost generally isn't worth their while developing the deep inhouse resources to collect, the capital impost.... Training large teams in skills such as skip tracing, collection skills etc. is not normally worth their while and can also distract from core business activities (may sound a bit strange given the banks are experts in lending, but have heard it several times that developing deep experience in collecting defaulted unsecured retail debt is not a core activity). Also, while dependent on the bank I have come across a few in the past that fully impair their CCs after 180 days in anycase, effectively setting LGD at 100% of EAD.
From an ongoing perspective I am aware of at least all 4 of the large banks having forward flow arrangements with the various debt collection agencies. These forward flows guarantee purchases of debt for an extended period (often 1-2 years) at a fixed price. E.g. you can buy $1m of defaulted debt per month at X cents in the dollar and those debts will meet certain credit characteristics. One collection agency may have several forward flows with the same lending institution.
I also agree completely with Ben 79 that the world of non-retail debt is certainly not something the debt collection agencies dable in, nor from my experience retail home loan lending.
CLH Price at posting:
93.5¢ Sentiment: None Disclosure: Not Held
