Posts tagged 'Securitisation'

How to arb Basel II

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

More Angry Birds, less regulatory arbitrage, please

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 tweakageRead more

Failing to Byzantium

Greek RMBS news that makes you go hmm (via Fitch, earlier):

Fitch Ratings-London-31 October 2011: Greek banks and RMBS transactions are at risk of losing interest payments because a Greek housing agency has delayed, if not frozen, paying interest subsidies. Read more

European banks considering covered bond innovations

Europe’s banks are seeking increasingly creative ways to finance themselves as they attempt to make up for a dearth of traditional debt funding amid market turmoil, the reports the FT. Banks have rushed to issue covered bonds in record numbers this year, with investors eager to buy since the bonds are backed by collateral and are also secured by the bank’s other assets in the event of the issuer’s bankruptcy. However, banks are constrained in the number of covered bonds they can sell because of regulatory limits on balance sheet ‘encumbrance’ and a shortage of high-quality assets. Some banks are examining whether ‘quasi-’ or ‘structured’ covered bonds – sitting somewhere between covered bonds and a traditional securitisation – can help fill the gap.

ECB collateral changes…

Unveiled on Wednesday as part of the ECB’s usual tidying up of collateral eligibility criteria. This one seems to affect (unsecured) bank bonds a bit though…

First, the Eurosystem has abolished the eligibility requirement (Sections 6.2.1.5 and 6.2.1.6) that debt instruments issued by credit institutions, other than covered bank bonds, are only eligible if they are admitted to trading on a regulated market. At the same time, the Eurosystem risk control measures for marketable assets (Section 6.4.2) have been amended. Specifically, the Eurosystem has reduced the limit for the use of unsecured debt instruments issued by a credit institution or by any other entity with which the credit institution has close links. Such assets may only be used as collateral to the extent that the value assigned does not exceed 5% of the total value of collateral submitted (instead of 10%, as previously stipulated). Read more

Banks offered waiver in foreclosures settlement

State prosecutors have proposed releasing banks from legal liability for securitisation practices in return for finally reaching a deal on a grand foreclosures settlement, the FT reports. Other officials have argued that the language of the waiver is too broad, although banks including JPMorgan, Wells Fargo and Bank of America have attacked the deal for being too narrow. Iowa’s Attorney-General has denied any deal on securitisation, Reuters says, although the two sides plan to meet this week to iron out differences.

Ratings dispute unsettles CMBS market

S&P has suspended its rating on a new CMBS transaction brought to market by Goldman Sachs and Citigroup, setting up a battle over its methodology which could overturn the CMBS market, according to Bloomberg. The banks have pulled the deal. The agency said there were potentially conflicted methods for calculating debt service coverage ratios in the security, a so-called “CMBS 2.0″ issue which includes a conduit/fusion structure that has so far under-pinned the market’s fragile recovery, Housing Wire reports. The unprecedented move has exposed both inconsistencies in how raters approach CMBS and the industry’s continued reliance on ratings shopping, IFR says.

The AAA bubble

This, we think, could well be the most important chart in the world right now:

 Read more

New York AG probes BofA settlement

New York’s attorney general has sought client data from investors taking part in Bank of America’s $8.5bn settlement of mortgage securitisation claims as part of a probe into the matter, Bloomberg reports. Firms including Goldman Sachs and BlackRock were asked to provide information on clients affiliated with New York public authorities that had invested in Countrywide trusts The letter will increase suspicions that BofA’s settlement deal failed to consult investors before it was made, Yves Smith writes at Naked Capitalism.

Shadow ratings go dark at S&P

Rating agency Standard & Poor’s might be making headlines when it comes to Greece, but it’s also been roiling a much smaller corner of the market — Collateralised Loan Obligations (CLOs).

Creditflux’s Mike Peterson has a great scoop on a letter sent last month by S&P’s head of US credit. In it, James Parchment tells the agency’s clients that S&P will no longer shadow rate companies with revenue of more than $499m. For companies with turnover between $200m and $499m the agency will only give shadow ratings, or “credit estimates,” six months after the loan is issued. Read more

ABS, CDS and various other acronyms in Australia

Your daily dose of financial innovation, right here.

Flexi ABS Trust 2011-1 may be a structured finance deal you’ve never heard of, but it’s making waves amongst securitisation types in Australia. Put simply it’s the first ever Australian deal to bundle interest-free payment plans for retail goods like jewellery, gym equipment, furniture and the like, according to Moody’s. Read more

Back to the future with UK RMBS

Your extend and pretend datapoint du jour, right here folks.

On Monday, Moody’s released a report advocating more disclosure of loan modifications within British Residential Mortgage-Backed Securities (RMBS).  The UK’s Financial Services Authority already said something similar last month, when it issued its first Prudential Risk OutlookRead more

European securitisation – now mostly retained

A milestone, of sorts, in the European structured finance market.

At the end of the first-quarter of 2011, retained securitised debt made up a bigger proportion — at 51.7 per cent — of total outstanding debt (€2,076bn) than debt placed with investors, according to new figures from the Association for Financial Markets in Europe’s (AFME) securitisation data report. Read more

China’s uncollateralised, cash flow-less, local government loans

The first time FT Alphaville stumbled upon China’s local government debt problem, it was in the form of one Shanghai district township snaffling a $250m loan from a Chinese bank for a “high-profile investment.”

Small problem — the township spent the loan, secured using a so-called local government investment vehicle (LGIV) without collateral, on completely unrelated development projects. Read more

Choose your own MBS accounting

Basel III. Accounting. Mortgage-Backed Securities. Yawn.

But wait — Basel III’s attempt to incentivise banks into managing their interest rate risk could be about to permanently alter the way banks handle some $1,480bn worth of MBS, or 11 per cent of their assets. Read more

The other (missing) side of risk retention?

Risk retention is all about ‘aligning the incentives‘ of various securitisation players.

But CreditSights analysts reckon regulators may have grabbed the wrong end of the securitisation stick, so to speak, when they proposed the rules. The structured finance meltdown, they argue, didn’t come about because of misalignment of incentives — but alignment. The securitisation mindmeld, so to speak. Read more

Premium capture is the new 436(g), Citi says

The repeal of Rule 436(g) sent the securitisation industry into a tizzy in the summer of 2010.

Now a component of last week’s proposed risk retention rules for Mortgage-Backed Securities (MBS) is sparking comparisons from some analysts, in relation to the commercial MBS market. The troublesome bit is called “premium capture” — and it’s pretty much the only thing that came as a surprise to the securitisaton industry in the 233-page proposal published by US regulators last week. Read more

Choose your own risk retention

So now that the Federal Reserve has gifted US banks with a one-size-does-not-fit-all policy in (some) securitisation risk retentions, which version will they be going for?

After all, they’ve got horizontal and vertical (and even L-shaped) slices to choose from. Read more

Moody’s gives CLOs a (big) ratings break

Quelle convenience.

Just as the market for new Collateralised Debt Obligations is heating up (in the US anyway, the European market is still frozen by those new skin-in-the-game securitisation rules), one of the biggest CLO-rating agencies around announces it may decide to tweak its methodology for rating the structured finance products. Read more

The Ian Dyson detox plan

Punch Taverns — aka the Toxic Pub Company — won’t be handing back the keys to its troubled tenanted inns after all.

Chief executive Ian Dyson has decided on a break-up instead, creating a pub world equivalent of a ‘good bank’ and a ‘bad bank’. Read more

Portugal: finally about the banks

Portugal’s fiscal plight is dire: but unlike in Spain or Ireland, the country’s banks are not major burdens on the sovereign. Where was the big 2000s Portuguese housing bubble, after all. Right?

No. Read more

Funding Europe’s bailouts, a callable conundrum

OK — here’s one last thing we don’t get about the weekend’s EU summit, which rolled out several fixes for the euro crisis.

We now have some first details on how eurozone member states will finance the European Stabilisation Mechanism, which begins operating in 2013. The details include the ESM’s full lending capacity (€500bn) and somewhat less clearly, proposals on how to secure this capacity. Read more

‘Securitisation is not that evil after all’

Now there’s a title, from a new BIS working paper, to catch one’s eye.

In it, the authors tackle the issue of information asymmetry in the securitisation process — or the basic idea that the holders or creators of a security might have better information about the investment than potential buyers. Read more

Back to the future with CMBS

Blink and you might have missed it — but the market for Commercial Mortgage-Backed Securities (CMBS) reopened about 15 months ago with three transactions.

But the deals, issued in late 2009, were not CMBS as we knew them pre-financial crisis. DDR 2009-DDR1, BALL 2009-FDG and JPMCC 2009-IWST were all backed by multiple commercial properties, but collateralised with a single loan. Bond classes averaged a paltry four, and deal sizes clustered around the small-ish $450m mark. Read more

Deutsche, Blackstone in CMBS revival

Deutsche Bank is orchestrating the first true UK property securitisation since the onset of the credit crunch in a sign of revival in the market, reports the FT. Property bonds for a deal involving US buyout group Blackstone are backed by loans to Chiswick Park in west London, one of the UK’s largest office parks, and the £300m securitisation is expected to come to the market by mid-year. Reuters adds that Europe’s commercial mortgage-backed securities (CMBS) market has been comatose for more than three years, and sources say the deal could be “attractive” to investors.

Deutsche to issue Blackstone bond

Deutsche Bank is orchestrating the first true UK property securitisation since the onset of the credit crunch in a sign of revival in the market, reports the FT. Property bonds for a deal involving US buyout group Blackstone are backed by loans to Chiswick Park in west London, one of the UK’s largest office parks, and the deal is expected to come to the market by mid-year. Blackstone agreed to buy the office park for about £480m at the start of the year and that deal, for which Deutsche is providing £360m of financing, is expected to complete next week. The securitisation itself will total about £300m.

UK banks sorcery

The Government today welcomed the commitment by the UK’s biggest banks on lending expectations and capacity, the size of the 2010 bonus pool, pay disclosure and support for regional growth and the Big Society.

This statement by Barclays, HSBC, Lloyds Banking Group, RBS and, with respect to lending, Santander, follows a period of discussion between the Government and the banks, known as Project Merlin… Read more

SEC sets sights on mortgage disclosures

US securities regulators investigating the role of banks in the mortgage crisis are homing in on the question of whether investors were misled about the home loans used to back securities, the FT reports. Kenneth Lench, chief of the SEC’s structured products unit, said at a conference in Washington on Friday that issues of interest to the commission include whether investors were properly informed about underwriting and foreclosure practices and the quality of mortgages used to back securities.

What lies in Greek RMBS

Greece has lots of problems.

Yet unlike Ireland or Spain, a collapsed housing market (even under austerity) isn’t one of them. But… Read more

‘Banks may be the best holders of mortgage risk,’ says Deutsche

Or, why the private label mortgage securitisation market keeps failing to rise from the dead — especially as the US grapples with Fannie/Freddie reform.

Here’s the thinking, from Deutsche Bank’s Steven Abrahams: Read more