Securitisation 2011
Quo Vadis?
Presentation to Housing Finance
Workshop
April 2011
Presentation Overview
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Historical overview/recap
2008 – a watershed year!
2009 – tentative recovery
Way forward/lessons learned
Discussion and close
Securitisation Defined
Definition…
“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 effect then is …….
The conversion of illiquid individual
loans to marketable securities, which
are generally asset backed.
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.
EMBEDDED
VALUE
Geographic Expansion &
Product Innovation
Securitisation
BOAT
LOANS
COLLATERAL
MORTGAGE
OBLIGATIONS
RESIDENTIAL
MORTGAGES
1970’s
USA
COMMERCIAL
MORTGAGES
Early
1980’s
SOCIAL
HOUSING
LOANS
EXPORT
RECEIVABLES
STUDENT
LOANS
SUB-PRIME
AUTO LOANS
HEALTH CARE
RECEIVABLES
EQUIPMENT
LEASES
DELINQUENT
TAXES
INSURANCE
PREMIA
ENTERTAINMENT
RECEIVABLES
AUTO
LOANS
RV’s
UTILITY
RECEIVABLES
SMALL
BUSINESS
LOANS
HOME EQUITY
LOANS
ROAD
TOLLS
CREDIT
CARDS
TRADE
RECEIVABLES
LOTTERY
RECEIVABLES
Mid
1980’s
Late
1980’s
UK
Canada
FRANCE
Early
1990’s
SPAIN
NETHERLANDS
VENEZUELA
MEXICO
Mid
1990’s
GERMANY, ITALY, TURKEY,
ARGENTINA, BRAZIL,
INDONESIA, MALAYSIA,
THAILAND, SOUTH KOREA,
PHILLIPINES, CHINA ETC.
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 Securitisation
Issuance by Type
(in billions of US dollars)
European Private Label Securitisation
Issuance by Type
(in billions of US dollars)
Non-European Private-Label
Securitisation Issuance
(in billions of US dollars)
Lessons Learned
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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 You
Simon Stockley
• Mobile
• Fax
• E-mail
+27 (0)83 2760068
0866 728133
stockley@catalis.co.za