This occasional Alphaville contributor just got back from a prolonged reporting stint in Las Vegas.
On the agenda was not one but two securitisation conferences. Some readers may recall that the American Securitization Forum (ASF) has for many years hosted an annual gathering, most often in the pleasant confines of the Aria hotel in Las Vegas. This year, a bitter schism within the securitisation industry meant there were dueling conferences – one organised by the ASF and the other by the break-away Structured Finance Industry Group (SFIG). Read more
Remember the days when securitised products were toxic, complicated and for the recklessly brave only? Another year of rising asset values later and the only members of the “10 per cent club” left are slices of equity on new issue collateralised loan obligations.
Morgan Stanley’s credit strategists have had their binoculars out and, which ever way you cut it, there simply aren’t big returns on offer in 2014. Except for high quality debt exposed to interest rate risk, the price of pretty much everything has gone up this year as yields have fallen.
Compare and contrast the Novembers of 2012 and 2013: Read more
What could possibly go wrong?
It looks increasingly likely that China is gearing up for another round of bad-loan cleansing with asset management companies seemingly being prepared for some more NPL absorption and a move towards what might be loosely termed market-based approaches to restructurings.
It looks like this will include securitisation, which Chinese authorities have been dipping their toes back into since a Lehman-burning, according to SocGen’s Wei Yao (with our emphasis): Read more
We missed this speech by Lord Hope, the former Deputy President of the UK Supreme Court, last week. Shame.
It covers the plight of Rangers Football Club, the Insolvency Act 1986; why legal textbook writers don’t have to be dead before you can cite them any more; and the implications of the court’s May decision in the Eurosail case — one of the most important judgments for securitisation law in years. Read more
Some light securitisation reading on Thursday; actually, more like some general ‘how much of western capitalism might be insolvent, anyway?’ reading.
It’s the UK Supreme Court’s judgment in the the Eurosail case.
The American Securitization Forum, the leading trade association for the securitization industry, fell into turmoil last week when most of the board resigned in a dispute with the group’s executive director over governance and bonuses, according to six people familiar with the matter. … Read more
And by “a few” we mean “fourteen”.
And by “fourteen” we mean “more than fourteen” because each “question” is more like “a bunch of questions” or in some cases “stuff that Gorton and Metrick wonder about but have not actually stated in the form of a question”.
Anyways, we bolded the main bits from each below, and you can find the full paper via NBER Read more
Rule-making is a natural response to a financial crisis. There is, of course, also a tendency for the new rules to be more complex than their predecessors. But this evolution has given some regulators pause for thought.
Consider the below a case study, as fuel for debate. It’s an example of when a local regulator managed to fudge the implementation of the edicts from the gnomes of Basel… Read more
Finding out that you are dealing with a terminal disease is never easy.
The natural reaction is to seek out a cure, no matter how bleak your chances. You will, for the most part, do almost anything to live. That includes changing your habits, your lifestyle, your friends, your profession or, for that matter, doing things you never previously considered doing. Whatever it takes to get just one more day of life. Read more
What’s a bank to do when it has to sit on exposures that it doesn’t like?
Sell them of course! Especially if those exposures are expensive to hedge and costly in terms of regulatory capital charges. Read more
How can banks make wise credit intermediation decisions when they don’t know the people or businesses to whom they are lending?
Better understanding of clients, not less, is what helps to improve banking. Read more
Back in December, the FT’s Tracy Alloway and Robin Wigglesworth explained how that which was financed by collateralised loan obligations was no longer going to be so financed. This will lead to a credit crunch for sub-investment grade companies that looks set to kick off in earnest in a couple of years.
Older CLOs* are making up for some of the slack by extending loans, but it appears that ultimately, funding will have to be obtained elsewhere or these companies will default. Read more
Aire Valley is in what’s called Brontë Country in the UK’s Pennine hills, home to the towns of Bradford and Bingley.
Is the new fad for securitising commodities creating dangerous parallels with the subprime crisis? It’s an observation we made the other day. But it turns out we’re not the only ones to share this view.
The logic is simple. If by leveraging housing stock — using the stock as collateral — the process of mortgage securitisation encouraged subprime lending to people who (arguably) couldn’t afford them, could leveraging commodities in the same way be encouraging equally uncouth lending practices? Read more
On a scale of meh (0) to tin hats at the ready! (10), FT Alphaville is thinking that the bank-led synthetic securitisation market is currently at about a 3. While worth keeping an eye on, these bespoke deals are still relatively small beans compared to what the market was just before the crisis struck.
Meanwhile, the more standardised side of the corporate credit market, involving trades on credit indices, has seen an impressive growth in risk-taking and activity since the beginning of the year. Read more
Should insurers use the history of Greek bond prices as a benchmark for holding capital against holdings of sovereign debt?
You might well ask. Read more
In Part 1, we discussed the interest Spanish banks, and the likes of JP Morgan, have shown in securitisations that may lower their regulatory capital burdens by bundling up assets and selling the riskiest pieces of the resulting structures to investors.
Here, we look at another worrisome and expensive exposure on bank balance sheets, and discuss how the treatment of these deals has varied from regulator to regulator — something the Basel Committee has recently started to cast a critical eye on. Read more
Regulations set forth by the Basel Committee that govern the amount of capital that banks have to hold are meant to set a level playing field round the world.
Or at least, we thought harmonisation was the point. Read more
Ha! Greek sovereign structured finance ha!
A great spot from Owen Sanderson over at IFR: Read more
In Part 1, FT Alphaville described what ‘synthetic securitisation’ deals done by Standard Chartered in the second half of 2011, looked like:
A month ago, FT Alphaville took a closer look at a particular transaction that Barclays completed in order to decrease the amount of regulatory capital it was required to hold against a portfolio of loans.
The transaction is called “synthetic securitisation”. The bank buys protection on the credit risk of part of its own loan portfolio, sold by outside investors. They transfer the risk but the loans themselves physically remain on Barclays’ balance sheet. Read more
DAVID EINHORN: Oh, you’re — you’re — you’re getting more than — than I could help with anyway. So, this is good.
PUNCH CEO: Okay. That’s fair enough. Well, one day we’ll get you a round on a pub crawl around some English pubs. Read more
A familiar theme in this year’s Barclays Equity Gilt Study (57th edition, just out)…
FT Alphaville has outlined how securitisation is getting back to its roots lately, allowing banks to reduce capital holdings at a time when fresh capital is hard to come by.
Basically, they buy protection on slices of their own assets, paying out handsome coupons to hedge funds and other investors to take on the assets’ risk. Ergo, less capital needs to be held by the bank to back this risk. Read more
In Part 1, FT Alphaville discussed the recent resurgence of so-called “BISTRO-type” securitisation deals. These allow banks to lower their capital requirements and defer losses by buying protection on portfolios of assets.
The Basel Committee issued a letter about such securitisation deals in December, effectively warning banks that over-engineering purely to reap regulatory capital benefits would not be tolerated. More recently, the head of the Financial Stability Board has called for the shadow banking sector, where the risk from such deals is offloaded, to be dragged into the harsh light of day. Read more
The airwaves are once again aflutter with tales of the “shadow banking” sector, owing to the chief of the relatively new Financial Stability Board.
As the FT’s Tracy Alloway also recently reported, the sector was already back to its pre-crisis size at the end of 2010 at a healthy $60,000bn of assets. Read more
In a previous post, we detailed trades that while making no sense economically, allow banks to game regulations around capital requirements and kick the recognition of losses further down the road.
This may have left you wondering how this is possible under the Basel II regulations, so we thought we’d walk you through the relevant sections, and outline the cases where this trade does, and doesn’t, work. Read more
The notice was rather vague, but we’ve done some sleuthing and have a better picture of what’s been going on now.
The timing of the letter struck us. The deadline for the great European bank recapitalisation isn’t far off (June 2012), but the conditions specified by the European Banking Authority cut off some of the most obvious routes, given the difficulty in tapping the funding markets: deleveraging and model tweakage. Read more