European Banks using seller financing in asset sales

European banks are lending funds to investors to acquire commercial portfolios in hopes of selling distressed assets because of increasingly stringent regulations which are hampering growth, Bloomberg reports.

"The use of vendor financing to de-lever defeats its own purpose," David Thesmar, professor of finance at HEC Paris, told the source. "The assets may become safer because the buyer injects equity, but the actual gain in core Tier 1 capital ratio for the bank isn't as great as if it was purely and simply sold. It shows banks’ deleveraging is going to be tougher than planned."

To aid Blackstone Group in acquiring a portion of a £1.4 billion (USD $2.2 billion) portfolio of commercial mortgages, Bloomberg says the Royal Bank of Scotland is considering lending the investment firm £600 billion (USD $939 million).

The source says such moves are being paralleled across Europe as banks are attempting to refrain from going into further debt as a result of the sovereign-debt crisis.

Raoul Leonard, an industry analyst and expert on European banks, told Bloomberg that many of the asset sales depend on the banks leveraging to buyers.