Overview of securitisation
activities in Ireland
Clive Jackson
OECD WPFS, Securitisation Workshop, 27-28 May 2010
Overview of securitisation activities
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Quarterly data collected under FVC Regulation (ECB/2008/30) from Q4 2009
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Ireland is one of the primary locations for FVCs in the euro-area (over 800
entities) in terms of total assets and range of activities
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Data collected allows the first analysis of activities of domiciled vehicles
which are unconnected with the domestic banking sector
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Main discussion point: the usefulness of qualitative information for
analysis
Background
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Legal framework
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Current framework comes under Section 110 of the Taxes Consolidation Act 1997, as
amended by Section 48 of the Finance Act 2003
“Section 110s” must register with the Revenue Commissioners, they may then utilise certain
treatments to ensure tax neutrality
Very broad range of financial assets may be held – e.g. equities, bonds, receivables, leases,
derivatives (synthetic transactions)
A qualifying company may not hold property (although could own shares in a property holding
company)
Securitisation carried out by Irish banks
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First securitisation of IR£200mn in 1996. Current outstanding securitised mortgages c. €37bn
Securitisation is also possible through covered bonds. Enabled by 2001 legislation, first carried
out in 2004. Loans may be transferred to a designated “mortgage bank” under the 2001
legislation, which may then issue Asset Covered Securities. FVCs are not used – loans stay on
the MFI balance sheet.
RMBS originated by Irish banks
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First period of growth : Predominantly used by specialist mortgage lenders in early stages.
Second period of growth : Originate and distribute model - important role in filling funding gap and
facilitating period of strong credit growth.
Third period of growth: Securitisation activity has accelerated despite freezing of market post-crisis
– “internal securitisations” used by MFIs to create eligible assets for refinancing operations.
Post-crisis growth:
internal securisations
EUR billion
45
30%
Securitised mortgages (LHS scale)
40
Securitised mortgages as percentage of outstandning mortgages (RHS scale)
25%
35
Second period of growth:
originate and distribute
30
20%
First period of growth
25
15%
20
15
10%
10
5%
5
0
0%
FVC Regulation ECB/2008/30
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Quarterly collection from resident FVCs from Q4 2009
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Requirement covers balance sheet, financial transactions and loan writedowns
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Reporting agents on behalf of FVCs may be the administrator, collateral manager, bank
Central Bank of Ireland deadline: T+19 days
Transmission to ECB: T+28 days
Reporting agents may use quarterly/monthly investor reports (or similar) to compile returns,
even if the reference date does not match reporting date
Security-by-security reporting of debt securities holdings
Reduced reporting requirement for smaller vehicles
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For FVCs with total assets under €180 million at end-Q4
Provide one figure – total assets – and a list of ISIN codes in issue
Applies to over one third of FVCs
However, these together make up less than 5% of total assets for the sector as a whole
Information on FVC activities
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Official register of FVCs maintained by the National Central Banks and ECB –
the nature of securitisation must be provided
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Also, FVCs were requested to categorise their activities: e.g. Residential MBS,
Consumer ABS, CDO, etc.
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Where this information is not provided or not sufficiently clear, this is
supplemented with information from alternative sources, e.g. the prospectus,
audited annual accounts, etc
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Together – nature of securitisation and type of activity – provides a useful
picture of the sector and tool for analysis
Nature of securitisation
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FVC Regulation: sector balance
sheets aggregated on the basis
of the nature of securitisation:
– True-sale (or traditional)
– Synthetic
– ‘Other’ FVCs
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‘Other’ category contains
hybrid FVCs (carrying out both
true and synthetic
securitisations), and some
vehicles where the nature is to
be confirmed.
Nature of securisation (by total assets)
Other
9%
Synthetic
19%
True-sale
72%
Activities of FVCs
EUR billion
140
120
100
80
60
40
20
0
Residential MBS
Commercial MBS
Note: Prelimary data
Consumer ABS
Corporate ABS
True-sale FVCs
CDOS/CLOs
Synthetic FVCs
Multi-issuance
programmes
Other FVCs
ABCP conduits
Other
Residential MBS
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Most assets are securitised loans, of course
100%
90%
80%
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Some synthetic securitisations are also
included.
– General point: Synthetic securitisations may
not always be fully funded – important in
thinking about credit risk transfer.
Remaining assets
70%
Fixed assets
60%
Financial derivatives
50%
Shares and other equity
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Other assets relate to RMBS securitisations
where the issuing FVC is in Ireland, but loans
held in FVC elsewhere
40%
Other securitised assets
30%
Securities other than shares
Securitised loans
20%
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Originators: mostly euro area banks
– Very little by OFI (non-bank mortgage
providers)
Deposits and loan claims
10%
0%
Residential MBS
Commercial MBS
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Mostly originated in the euro area (outside
Ireland) or by a Rest of World originator
Over 40 FVCs are using a derogation
providing full breakdowns for loans
originated and serviced by euro area MFIs
– Instead these breakdowns will be collected
from banks by National Central Banks
– Data exchange between National Central
Bank and domicile of FVC (facilitated by ECB)
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We have recorded originating/servicing bank
linked to the FVC to help this process
100%
90%
80%
70%
Remaining assets
Fixed assets
60%
Financial derivatives
50%
Shares and other equity
40%
Other securitised assets
30%
Securities other than shares
20%
Securitised loans
Deposits and loan claims
10%
0%
Commercial MBS
Consumer ABS
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Not a feature domestically
100%
90%
80%
•
Small volumes compared to mortgage
securitisations
Remaining assets
70%
Fixed assets
60%
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Mix of euro area bank and non-euro area
originators
Financial derivatives
50%
Shares and other equity
Other securitised assets
40%
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Includes securitisations of auto loans, credit
card debt.
Securities other than shares
30%
Securitised loans
20%
Deposits and loan claims
10%
0%
Consumer ABS
Corporate ABS
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Broad in terms of originators. Sometimes
linked to specific NFC company or group
Securitisation of trade or other receivables
100%
90%
80%
Remaining assets
70%
Fixed assets
60%
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Securitisations of leases
Financial derivatives
50%
Shares and other equity
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Smallest FVC average size (by total assets)
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Interesting in terms of alternatives to bank
financing and unsecured forms of financing
40%
Other securitised assets
30%
Securities other than shares
Securitised loans
20%
Deposits and loan claims
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Security-by-security data may be useful
(where available)
10%
0%
Corporate ABS
CDOs and CLOs
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These make up the largest proportion of
vehicles
100%
90%
80%
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FVCs balance sheets can be used to
determine if they are Collateralised Loan
Obligations, as opposed to other type
70%
Remaining assets
60%
Fixed assets
Financial derivatives
50%
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Diversity of structures and strategies,
including:
– Vehicles with ‘static’ portfolios
– Vehicles with ‘managed’ portfolios with an
active investment manager
– Variety of strategies and motivations
• Loan syndications
– Challenges in assigning originators
Shares and other equity
40%
Other securitised assets
30%
Securities other than shares
Securitised loans
20%
Deposits and loan claims
10%
0%
Cash CDO
Synthetic
CDO
Asset Backed Commercial Paper
100%
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Mostly vehicles purchasing assets as part of a
programme with the CP issuer elsewhere (e.g.
USA)
90%
80%
Remaining assets
70%
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Profile of debt securitised issued is less than
one year
Fixed assets
60%
Financial derivatives
50%
Shares and other equity
40%
Other securitised assets
Large average size (around €1.5bn)
Interesting in terms of links to arranging banks
and other FVCs (often in other jurisdictions)
Securities other than shares
30%
Securitised loans
20%
Deposits and loan claims
10%
0%
ABCP
Multi-issuance programmes
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One FVC (Multi-Issuance Vehicle) may be used
for a programme of note issuances
(numbering perhaps dozens)
100%
90%
80%
70%
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Collateral for each series is ring-fenced
through contracts to a specific issuance –
issuances are made independent and
bankrupt-remote from each other
Remaining assets
Fixed assets
60%
Financial derivatives
50%
Shares and other equity
40%
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Similar to programmes available in
Luxembourg, but there each issuance
(‘compartment’) is a separate legal entities
Other securitised assets
Securities other than shares
30%
Securitised loans
20%
Deposits and loan claims
10%
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MIVs can issue both true and synthetic series
within the one vehicle
0%
Multi-Issuance
programmes
Other activities
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Miscellaneous other category for the moment
100%
90%
80%
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Some FVCs not assigned to any category
Also includes FVCs set up by international
institutions to warehouse banks’ “bad assets”
70%
Remaining assets
Fixed assets
60%
Financial derivatives
50%
Shares and other equity
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It will include the Irish version of same, which
is also using a number of FVCs
40%
Other securitised assets
Securities other than shares
30%
Securitised loans
20%
Deposits and loan claims
10%
0%
Other
Conclusion
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FVCs are a very heterogeneous group.
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Good news:
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Analysis of the sector is greatly enhanced by additional qualitative information on the
vehicle
This information also helps spot where some items may be reported incorrectly
Even high level information is useful, but more detailed info may be available without
too much effort ...
Some information may already be available within Central Banks (e.g. for eligible
collateral) or Regulators (supervision of banks and their exposures)
A lot is available publicly, or from commercial providers, stock exchanges, etc
Can this be exploited at a euro-area level?
Opportunities:
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Additional information on linkages between FVCs would be useful to compilers
Information on links between FVCs and their MFI sponsors/arrangers would be useful
for understanding the sector developments (potentially useful to supervisors?)
Thank you.
Thank you
Questions?
Appendix 1: Comparison of assets by FVC activity
Synthetic CDO
Residential MBS
Other
Multi-Issuance
programmes
Corporate ABS
Consumer ABS
Commercial MBS
Cash CDO
ABCP
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Deposits and loan claims
Securitised loans
Securities other than shares
Other securitised assets
Shares and other equity
Financial derivatives
Fixed assets
Remaining assets
Note: Prelimary data
Appendix 2a: Items collected under ECB/2008/30
Assets
Liabilities
• Deposits & loan claims
• Loans & deposits received
• Securitised loans
• Debt securities issued
• Other securitised assets (e.g.
trade or tax receivables)
• Capital & reserves
• Financial derivatives
• Debt securities held (ISIN-by-ISIN
data)
• Shares & other equity
• Financial derivatives
• Fixed assets
• Remaining assets
• Remaining liabilities
Flows
• Financial transactions in assets
and liabilities categories
• Write-downs & write-offs of
securitised loans
Appendix 2b: Breakdowns collected under ECB/2008/30
Geographic
• Domestic, Other Monetary Union
Member State and Rest of World
for securitised loans from euroarea banks and debt securities
held
• Unallocated for most other asset
and liability categories
• No geographic data on holders of
issued securities
Sector
Maturity
• MFI/Non-MFI on deposits & loan
claims and debt securities held.
• Of securitised loans from banks to
NFCs
• Securitised loans from euro-area
banks broken down by customer:
government; OFI; insurance &
pension fund; household; nonfinancial corporations.
• Of debt securities held
• To net out multi-FVC
securitisation transactions, ‘of
which FVC’ positions are
requested for some items.
• Unallocated for most asset and
liability categories
• Of debt securities issued