Baur plans to enter debt purchasing
The Baur Partnership in the USA says it intends to enter the debt consolidation industry. Can banks improve their balance sheets like this?
The Bauer Partnership, Inc. says that it plans to enter the $60 Billion Dollar Annual Debt Purchasing Market with the formation of a wholly owned subsidiary, Bauer Debt Purchasing Corp.
Baur says that these portfolios range from bank debt to credit card debt with average debtor ranges are between $1,500 to $2,000.
Bauer plans to acquire large portfolios by utilizing its common stock as a currency and acquiring such debt at large discounts in bulk amounts. Bauer Debt will then enter into revenue sharing agreements with various national collection agencies in order to convert such portfolios into performing debt.
The debt consolidation market has been active for many years and usually grows significantly in times of economic downturn. It seems that many small debtors think that the creditor will simply be too busy to chase small debts. Whilst this might have been true some years ago (and there is no actual evidence that is was true at all, except in relation to tiny amounts) the advent of computerisation and revenue sharing with recovery agencies (and in some countries with law firms) has meant that even small amounts are now recoverable. The consolidation market also creates a further drive to recovery as the consolidator has paid a smaller margin for their debt.
In the hands of the creditor, the debt is removed from bad debt to loss, so permitting a one time charge on the accounts. And the loss is at least mitigated by the payment of a part of the debt.
Financial institutions like the idea because a notice of assignment can be sent to the debtor and then any tactics used by the recovery agent do not, in many cases, carry the name of the financial institution.
According to Baur, Industry leaders estimate that the face value of debt purchased grew from $50 billion in 1999 to $60 billion in 2000-an increase of 20 percent; it quotes estimates that the value of purchase debt of $2.4 billion. With an average return of 150 percent, that puts the value of revenues for this category at $3.6 billion
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