News Analysis
Capital Relief Trades
Stars aligned
Nordic advisory firm to capitalise on constructive outlook
The new advisory venture of two ex-Nordea SRT experts seeks to capitalise on a growing Nordic market (SCI 17 May). Indeed, the stars seem to be aligned for a second wave of capital-focused transactions in the region as regulatory requirements begin to bite.
Jonas Bäcklund, the ceo of the boutique advisory firm Revel Partners, says: “The bet we’re taking is that the Nordic SRT market is finally ready to take off. In this sense, one could say that we’re walking the talk by leaving a by-now very established institution with strong ambitions in this space to build our own franchise. So, we definitely think it’s happening.”
He adds that both himself and business partner Victor Kloos, the newly minted director of structured credit at Revel, have two decades of experience at Nordea between them and established the first Nordic SRT programme. “Our main focus was looking after the bank’s significant balance sheet, but we’ve also acted as an arranger to other banks, given our position in the Nordics.”
From this position, the pair have noticed a gradually more constructive outlook from local regulators and an increased interest in capital relief – especially given the Nordic region’s combination of higher capital requirements for banks, in comparison to other European regions, and a lower delinquency rate too.
In Bäcklund’s previous capacity as head of group structuring at Nordea, he observed that the ECB had designated developing the securitisation area a “key priority” – with particular relevance to the Nordic and Baltic countries – where local regulators have historically been more reluctant, airing concerns such as the flowback risk (SCI 28 March).
He says the banking market in the Nordics is concentrated after a few rounds of consolidation. The region’s focus on efficiencies with an eye on digitalisation, as well as strong underlying economies supporting low through-the-cycle loan loss levels has resulted in a resilient banking sector with above-average profitability.
This has also meant that Nordic banks up to now have been able to manage the higher capital requirements, resulting in the capital ‘gold-plating’ from the regulator not being a pressing concern. “We believe, however, with the roll-out of Basel 3 Endgame and further regulatory clarity on securitisations, the stars are aligned for a second wave of capital-focused transactions in the region and there will be less stigma attached to it. We would like to believe that we’re uniquely positioned to meet this demand, as we have done pretty much every deal in the Nordic region - so if/when the market opens, we will be ready.”
Kloos observes: “Elsewhere in Europe over the last 18 months, developments suggest more issuers and assets are coming to market - a development which we expect to play out in the Nordics as well. Sentiment in the Nordics started to change as interest rates went up - with increased rates, capital became more expensive and the new regulatory environment will make it even more so.”
Revel hopes it will soon be able to expand on the investment side too, particularly for Northern European tier 2 and tier 3 banks. Kloos cites Sweden as an example, where the four largest banks make up around 80% of the market. But smaller banks - which make up the other 20% - will also likely want access to the SRT market as it develops.
To this end, the Belvere Group - the investment arm of the business and also Revel’s parent company - led by Tom Johannesen, will be looking to play an active role. The investment arm has already secured capacity to invest and although good progress has been made towards a formal launch of the funds, it is expected to take a little more time to come to fruition.
“Revel is firmly positioned in the advisory business; independently working with the best interest of our clients [is] at the core of our model. But it’s fair to say for some banks, potential issuers outside the top four, the SRT market is difficult to access - meaning that through Belvere Capital, there is a structure in place to meaningfully broaden the access to structured capital,” Bäcklund concludes.
Joe Quiruga
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News
RMBS
Mortgage boost?
ICO guarantee to have twofold effect
Abanca and Banco Santander are among the first lenders to sign up to the Official Credit Institute (ICO)’s new Mortgage Guarantee Programme, which promotes mortgage loan origination for young people in Spain. The programme is set to increase home ownership and support house prices, but it could result in higher default risk if guaranteed loans are included in RMBS pools.
The ICO programme, to which €2.5bn has been allocated by the Spanish government, will guarantee up to 20% of a mortgage loan for the purchase of a first home or 25% if the property to be financed is sufficiently energy efficient. As such, the guarantee will incentivise the origination of high LTV mortgage loans, as it is only available for mortgage loans with LTVs higher than 80% and up to 100%.
The programme targets people aged up to 35 and families with young children that might be able to afford a mortgage but may not have enough savings for a down payment. The guarantee will be free for borrowers and the lenders adhering to the programme.
A recent Morningstar DBRS commentary suggests that given the measure could increase home ownership within the younger population and create more demand, it could therefore be positive for Spanish residential property prices. “While higher prices would worsen affordability for new buyers, they would be beneficial for outstanding RMBS and covered bond transactions, as higher prices of assets backing mortgage loans could reduce the likelihood of borrowers defaulting on their debt payments and increase the recovery amounts in case a borrower ceases debt repayment. However, these measures could also result in a more indebted younger population in Spain,” it states.
Morningstar DBRS also warns that future RMBS transactions could have lower credit quality if loans made under the ICO programme are included in those portfolios, considering the type of borrowers eligible for the guarantee and the rating agency’s view that mortgages with LTVs higher than 80% carry increased default risk. “The loans could also experience higher loss given default, as the ICO-sponsored guarantee will cover only up to 20% to 25% of the potential loss assumed by the lender if foreclosed properties do not cover the entire loan balance and because of the guarantee's time limit, which is 10 years from when the mortgage loan is granted.”
Under the programme, the Spanish Ministry of Housing and Urban Agenda will share the risk of up to 20% (or 25%) of each mortgage's principal balance with the lender on equal terms. It will be in force until the end of 2025, although it can be extended until 2027, and the term of the guarantee will be a maximum of 10 years.
Assuming an average guarantee amount of around €50,000, the objective is to facilitate the purchase of approximately 50,000 properties, according to Morningstar DBRS. Eligible borrowers should: have resided in Spain during the last two years; use the mortgage to finance their first and main residence; have a net worth no higher than €100,000; and have a maximum annual salary of €37,800 (or €75,600 for couples), which can increase based on the number of children or in cases of single-parent families.
Corinne Smith
Market Moves
Structured Finance
Italian NPL volumes hit three-year low
Market updates and sector developments
Italian NPL volumes last quarter hit their lowest point since 2021, according to Scope Ratings. Volumes were down 19% on the 2022-2023 average.
March 2024 was particularly poor, with volumes down 36% compared to March 2023 and 2022 - despite the total number of transactions (44) being higher (2022 and 2023 saw 41 and 43 deals respectively).
Over the last two years, March has been a bumper month for Italian NPL proceeds. In March 2022, NPL proceeds exceeded €300m compared to around €150m in January and just over €200m in February of the same year. Likewise, March 2023 saw proceeds jump to nearly €350m after January and February both saw proceeds shy of €200m. But this year’s March boom has gone bust, with January and February seeing proceeds of around €175m and March proceeds only just exceeding €200m.
The lucrativeness of these deals has also seemingly taken a nosedive. This year to date has seen 45 transactions closed in total – more than in every half-year from 1H19 onwards. However, total proceeds are below €600m. This equates to roughly €13m per deal, while 1H19 saw figures of around €32m per deal and 2H23 around €35m per deal.
In other news…
Final STS guidelines released
The EBA has published its final report on the STS criteria guidelines for on-balance sheet securitisation and amending Guidelines EBA/GL/2018/08 and EBA/GL/2018/09 on the STS criteria for ABCP and non-ABCP securitisation. The move follows a three-month public consultation, which ran from April to June last year (SCI 21 April 2023).
The guidelines aim to provide a single point of consistent interpretation of the STS criteria and ensure a common understanding of them by originators, original lenders, securitisation special purpose entities (SSPEs), investors, competent authorities and third-party verification agents verifying STS compliance, in accordance with Article 28 of Regulation (EU) 2017/2402 throughout the EU.
Notably, Chapter 6 of the report focuses on criteria relating to transparency, with relation to data on historical default and loss performance. It clarifies that “for the purposes of Article 26d(1) of Regulation (EU) 2017/2402, where the originator cannot provide data in line with the data requirements contained therein, external data that are publicly available or are provided by a third party - such as a rating agency or another market participant - may be used, provided that all of the other requirements of that article are met”.
The term ‘substantially similar exposures’ is also highlighted as referring to exposures that meet certain conditions, one of which is that the most relevant factors determining the expected performance of the underlying exposures must be similar.
In a recent blog post, European DataWarehouse (EDW) says that it has already been supporting originators that do not have ‘substantially similar exposures’ on their balance sheets or have less than five years of historical data, by leveraging its loan-level database of over 1,800 ABS transactions. EDW compiles the required set of performance data that includes dynamic delinquencies and static default and loss information - as required by Article 22(1) of Regulation (EU) 2017/2402 for non-ABCP securitisations - and can offer originators proxy data on ‘substantially similar exposures’ in their STS process for on-balance sheet securitisations, as per the new EBA guidelines for Article 26d(1).
EDW’s securitisation repository includes data spanning a time series of more than 10 years, from over 10 jurisdictions and across all major asset classes.
Joe Quiruga, Corinne Smith
Market Moves
Structured Finance
Job swaps weekly: WTW appoints experienced leader from SMBC
People moves and key promotions in securitisation
This week’s roundup of securitisation job swaps sees WTW appointing a head of alternative credit insurance, financial solutions, from Sumitomo Mitsui Banking Corporation (SMBC). Elsewhere, Gowling WLG has lured a Toronto-based industry veteran as partner to head up its new structured finance and securitisation group, while Barings has hired an md and global head of fund and asset level finance from Commonwealth Bank.
WTW has appointed Claudia Rost as head of alternative credit insurance, financial solutions, based in its New York office. Rost leaves her role as head of portfolio management in SMBC’s Americas division after seven years with the business and previously spent 25 years at Commerzbank AG.
In her new role, Rost will be responsible for originating and structuring credit insurance deals for alternative credit lenders; developing the underwriting market for structured finance solutions; and supporting broking teams and clients on transactions including SRTs, CLOs and other portfolio financings. She will report to global head of financial solutions Evan Freely.
Meanwhile, Gowling WLG has launched a new structured finance and securitisation group and hired Jason Kroft as a Toronto-based partner to head up the division. The firm's new division will support a broad range of Canadian and international clients with structured, financial and derivatives products from development stage through to offering.
Kroft joins Gowling WLG from Miller Thomson, leaving his role as partner and co-leader for structured finance and securitisation after two years with the business. He previously spent 25 years at Stikeman Elliott and left his position as partner in 2022.
Barings has appointed Commonwealth Bank’s Robert Cammilleri as md and global head of fund and asset level finance, based in its New York office. Cammilleri has more than 20 years of experience working across structured finance, fund finance and broader credit.
The new recruit leaves his role as executive director and head of institutional coverage for North America at Commonwealth Bank after six years with the business. He previously worked at National Australia Bank and Fitch Ratings. Cammilleri will report to Mike Henderlong, global head of Barings’ capital markets and strategic relationship management group.
Linklaters has promoted Christian Storck to global head of capital markets based in its Frankfurt office, replacing Hong-Kong-based partner Hwang Hwa Sim. Storck, who is a partner and joined the firm 21 years ago, is promoted from head of finance for Germany. He specialises in debt capital markets, derivatives and structured finance. Hwang Hwa Sim is stepping down to focus full time on his practice in the Asia region, the firm said.
Securis Investment Partners has appointed Judy Klugman as an independent non-executive director. She spent 24 years with Swiss Re, most recently as global head of ILS distribution and sales, prior to departing the firm in June 2023. Her career at Swiss Re spanned a range of senior ILS and capital markets-focused positions, including md of capital markets and co-head of ILS.
Newmark has hired Capital One Multifamily’s Evan Williams as vice chair, head of affordable housing debt and structured finance, as it looks to expand its presence in the multifamily capital markets space. Based in New York, Williams leaves his role in the affordable housing loan origination team at Capital One after seven years with the business, having previously worked at Prudential Mortgage Capital Company and Centerline Capital Group. He focuses on the origination of affordable multifamily housing loans and government-sponsored enterprise business, with particular expertise in Fannie Mae multifamily affordable housing.
Hunton Andrews Kurth has promoted Jennifer E Wuebker to counsel. Based in Richmond, Virginia, Wuebker advises on corporate restructuring, asset based-lending, safe harboured financial contracts, asset securitisations and other capital markets transactions. She joined the firm in 2019 and previously worked at Whiteford Taylor & Preston, the United States Bankruptcy Court in the Western District of Texas, and WealthForge.
And finally, Convergence has hired Francesco Kalaydjian Serraino as a quantitative analyst, based in London. He brings expertise in machine learning and data science, honed through internships at Capital Systems, Amazon and ArmBionics.
Kenny Wastell, Corinne Smith
structuredcreditinvestor.com
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