Securitisation 2011 Quo Vadis? Presentation to Housing Finance Workshop April 2011

Securitisation 2011 Quo Vadis?

Presentation to Housing Finance Workshop

April 2011

Presentation Overview

• Historical overview/recap• 2008 – a watershed year!• 2009 – tentative recovery• Way forward/lessons learned• Discussion and close

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

Securitisation Defined

The conversion of illiquid individual loans to marketable securities, which are generally asset backed.

The effect then is …….

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.

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

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

Securitisation Issuance based on Originating Country or Region

ABS Sectors in the US

European Securitisation by Type of Collateral

US Issuance of Asset-Backed Securities

Gross Securitisation Issuance

US Issuance of MBS & ABS

Securitisation Issuance in Europe

Global Net Securitisation Issuance

Spreads on AAA-Rate European ABS

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

Credit Spreads on US AAA Securitisation Instruments

(in basis points)

Global Private-Label Securitisation Issuance by Type (in billions of US dollars)

US Private Label SecuritisationIssuance by Type (in billions of US dollars)

European Private Label SecuritisationIssuance by Type (in billions of US dollars)

Non-European Private-Label Securitisation Issuance

(in billions of US dollars)

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

Global Covered Bond Issuance(in billions of Euros)

Selected Covered Bond Spreads

(in basis points)

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

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

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

Thank YouSimon Stockley

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