Winner: UniCredit

UniCredit completed nine SRT transactions during the awards period, across four jurisdictions and five asset classes, referencing underlying portfolios totaling €13bn. For supporting eight clients, five of which were external, the bank is SCI’s pick for European Arranger of the Year.

Between 1 July 2023 and 30 June 2024, UniCredit continued to develop innovative and efficient structures for both standardised and IRB banks. New product features added include undrawn exposures of revolving credit lines and synthetic excess spread.

Notably, the bank also continued to lead the way in Central and Eastern Europe, with the €2.15bn Project Makalu representing the largest-ever SRT for the region and the €1.66bn Project Argo the third largest. Closed in September 2023 and originated by mBank, Project Makalu was structured in the form of directly issued CLNs and offered the first opportunity for SRT investors to gain exposure to Polish retail assets. Project Argo closed in December 2023 and references a portfolio of Polish consumer loans originated by Millennium BCP.

Another highlight was the €847.4m Arts Consumer 2023, UniCredit’s second full-stack SRT deal with the EIB acting as senior and mezzanine investor. Closing in October 2023, this transaction provided support to Italian SMEs and mid-caps.

Looking ahead, UniCredit anticipates that the SRT market will continue to grow rapidly - boosted by fresh issuances from US banks, but also from new originators across Europe. Banks are turning to SRTs in areas of their business that are core and important for client relationships, but that can be inefficient uses of regulatory capital. As a result, the collateral behind SRTs is often of a high quality.

Two main drivers are guiding the growth of the SRT market, in UniCredit’s view: Basel 4 implementation that will increase the capital required for several business lines; and banks’ profitability improvement via capital velocity generated by rotating balance sheet and releasing capital. “Basel 4 has forced banks to find different solutions - not only in terms of RWA optimisation, but also to keep some business lines profitable, given the higher capital charge that will be required,” says Andrea Modolo, md at UniCredit.

He continues: “If I look back at how the market has evolved over the past years, the evolution is incredible in terms of new originators, asset classes and jurisdictions involved: if, at the beginning, SRT transactions were mainly an ‘extraordinary’ tool for the largest banks located in a few jurisdictions in Europe, nowadays it is becoming more of an ordinary tool accessible to a broader range of originators (and not anymore restricted only to the largest banks) and jurisdictions.”

Over the past years with a macro regime of lower rates, many banks increased their duration to their balance sheet to generate additional yield; with today’s higher rates, that decision has led to an up-tick in unrealised mark-to-market depreciation that makes it difficult to syndicate in the secondary market such loans without realising a loss. For banks with these assets on their books, SRTs can provide hedging, capital relief and liquidity without having to sell assets and realise losses: the capital relief can be deployed in assets generating higher yield, thereby increasing profitability for the banks.

“The trajectory of the SRT market seems pretty clear: while the instrument demonstrated in the past years the ability to transfer real risk to investors, the focus now is on its significant impact; SRTs will become more and more relevant for the profitability of banks, the velocity to redeploy capital in the real economy and hence to support the economic growth of the different countries,” Modolo observes.

He adds: “European banks have a competitive advantage when it comes to SRT transactions, given the strong experience gained over the past years. The evolution of SRTs is to focus on the future flow/new origination: banks have so far securitised their stock portfolio that requires at least 6-12 months to ramp up, but velocity is key to manage RWAs in a timely manner and to improve the profitability of banks – therefore, we expect an increase of the use of securitisation to secure capital relief of the new origination/future flow.”

Mario Draghi recently published a report focused on the Future of European Competitiveness, which clearly stated that at the moment EU banks cannot rely on securitisation to the same extent as their US counterparts, with an overall issuance in euros standing at just 0.3% of GDP (as at 2022) - while for the US, the figure was 4%. “Securitisation makes banks’ balance sheets more flexible by allowing them to transfer some risk to investors, release capital and unlock additional lending. It could also act as a substitute for lack of capital market integration by allowing banks to package non-tradeable assets to non-bank investors,” Modolo concludes. “Indeed, we truly believe that securitisation is a powerful tool for banks’ capital and funding needs; we had the pleasure of working with several clients across Europe, setting up both their inaugural SRT transactions and their funding ABS programmes. The pipeline for next year highlights a healthy market and that new originators will join the SRT market.”

For the full list of winners and honourable mentions in this year’s SCI Capital Relief Trades Awards, click here.