Securitisation 2011 Quo Vadis? Presentation to Housing Finance Workshop April 2011
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Transcript of Securitisation 2011 Quo Vadis? Presentation to Housing Finance Workshop April 2011
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Securitisation 2011 Quo Vadis?
Presentation to Housing Finance Workshop
April 2011
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Presentation Overview
• Historical overview/recap• 2008 – a watershed year!• 2009 – tentative recovery• Way forward/lessons learned• Discussion and close
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Definition…
Securitisation Defined
“The packing of individual loans and other debt instruments, converting the package into a security, enhancing its credit for the further sale to a third party.”
Kendall
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Securitisation Defined
The conversion of illiquid individual loans to marketable securities, which are generally asset backed.
The effect then is …….
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Securitisation Defined
In practical terms …
Securitisation pulls apart financial transactions and allocates the risk and rewards to those entities that are best able to accept and therefore price for them.
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EXPORTRECEIVABLES
STUDENTLOANS
DELINQUENTTAXES
ENTERTAINMENTRECEIVABLES
HEALTH CARERECEIVABLES
SUB-PRIMEAUTO LOANS
SOCIAL HOUSING
LOANS
EMBEDDEDVALUE
UTILITYRECEIVABLES
LOTTERYRECEIVABLES
ROADTOLLS
BOATLOANS
EQUIPMENTLEASES
INSURANCEPREMIA
RV’s
HOME EQUITYLOANS
TRADERECEIVABLES
AUTOLOANS
SMALL BUSINESS
LOANS
CREDITCARDS
COLLATERAL MORTGAGE
OBLIGATIONS
COMMERCIALMORTGAGES
RESIDENTIALMORTGAGES
1970’s Early1980’s
Mid1980’s
Late1980’s
Early1990’s
Mid1990’s
USA UKCanada
FRANCE SPAINNETHERLANDSVENEZUELAMEXICO
GERMANY, ITALY, TURKEY, ARGENTINA, BRAZIL,INDONESIA, MALAYSIA,THAILAND, SOUTH KOREA,PHILLIPINES, CHINA ETC.
Geographic Expansion & Product Innovation Securitisation
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Securitisation was
• Stable and reliable source of funding for banks• Primary source of funding for non deposit
taking institutions • Relatively cheap and easy mechanism for
raising long term funding• Cornerstone of diversified funding strategy• But events of 2008 changed all of that
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Securitisation Issuance based on Originating Country or Region
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ABS Sectors in the US
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European Securitisation by Type of Collateral
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US Issuance of Asset-Backed Securities
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Gross Securitisation Issuance
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US Issuance of MBS & ABS
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Securitisation Issuance in Europe
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Global Net Securitisation Issuance
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Spreads on AAA-Rate European ABS
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2009
• Some signs of recovery• Majority of issuances refinance/liquidity initiatives
by central banks • Some return to normality in credit spreads • Majority of activity at short end of credit curve• Tentative and greenshoot recovery. Dubai default
likely to undermine
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Credit Spreads on US AAA Securitisation Instruments
(in basis points)
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Global Private-Label Securitisation Issuance by Type (in billions of US dollars)
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US Private Label SecuritisationIssuance by Type (in billions of US dollars)
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European Private Label SecuritisationIssuance by Type (in billions of US dollars)
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Non-European Private-Label Securitisation Issuance
(in billions of US dollars)
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Lessons Learned• Keep it simple/avoid the exotics• Reliance on relationships • Access to balance sheet funding/equity key• Cannot view as only source of funding – not a business
model in itself• Must be underlying commercial rationale for any
transaction• “Originate and sell” no longer viable business model• Originators/promoters have to have “skin in the game” (CF
covered bonds)• Greater recourse lending• Property (particularly residential) viewed with deep
suspicion by investors• Long term funding difficult. Focus on early
amortising/recycling assets
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Global Covered Bond Issuance(in billions of Euros)
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Selected Covered Bond Spreads
(in basis points)
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Lessons for Meena
• Region is not immune – will take lead from established markets
• Sentiment in emerging markets more exaggerated and investor appetite transient
• Lack of liquidity and depth limits investor appetite but market may recover more quickly if investors chase yield
• Dubai resolution key• Greater focus on underlying collateral and strength of
issuer, arranger and servicer• Property related transactions likely to be difficult
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Lessons for Rasameel• Investors suspicious of “cut and run” schemes• View as part of integrated business model and not
business model in itself• Relationship with investors key• Greater reliance on independent due diligence
process. Rating agencies no longer viewed as reliable
• Batten down the hatches - ride out the storm. Consolidate and focus on internal systems and controls
• Use as recruitment opportunity. Significant human capital freed up as a result of global market conditions
• 2010 likely to be a tough year – manage stakeholder expectations
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How should Rasameel respond to these changes?
• Diversify – cannot rely exclusively on securitisation as funding or business model
• Develop ancillary business lines• Limited scope for pure advisory work – will have to take
equity position• Servicing and collections ability a new differentiation• May need to bolster balance sheet – “flight to quality
syndrome”• Establish a presence in diversified geographic markets as a
risk mitigant• Establish diversified liquidity facilities and funding lines • Position Company strategically for when upturn comes late
2010