Robin Hood Finance Limited

Banks

Assets
Some banks have structured assets on their books and are concerned about risk, valuation or the best strategy for dealing with these. An opinion from a disinterested third party can be very valuable.

Banks and other investors are distinguishing sharply between “real” and “structured” underlying assets. Several banks are still funding books of leases and trade receivables, but investors are shying away from more structured assets. Residential mortgages, in particular, have been tainted by the sub-prime problems, but there are very strong AAA assets in the market. Stress testing by rating agencies and others has shown that certain prime AAA RMBS bonds still have very significant credit cover.

There is a real opportunity for insurers, pension funds and other investors to buy high-quality assets at distressed prices. Solid AAA risks which used to trade at 10-15bp margin now trade in the hundreds of basis points. Merrill Lynch wrote in Jan 09 of the “...tremendous opportunities for buy-and-hold-to-maturity-cash-rich investors”.  There is real value to be had. The important point is to identify the right assets- to sort out the good from the downright risky.


RHF offers independent advice on

  • Existing assets & portfolios
  • New assets

Liabilities
Banks need funding and capital. Since the 1980s, securitisation has helped banks both to access alternative funding, and to align capital with economic risk.
The amount raised via asset-backed bonds issued in the European securitisation market was actually 57% higher in 2008 than in 2007. The investors were different, of course-much more went to central banks rather than capital markets investors. The point is that it is possible to raise significant funding using structured assets, whether for now via the central banks, or in the future via the markets when they return.


(For more detail on how banks have been using securitisation to obtain inexpensive funding from the European Central Bank, click here)


Under Basel II, less capital is needed for higher-rated assets. And far less bank capital is available now! Banks are likely to prefer such assets, which will use capital more efficiently, and increase their RoE and income.
The slide below gives a basic illustration of RoEs based on a loan and a securitisation of trade receivables

Case Study, comparison of 2 capital cases

See also RHF’s article on the potential benefits of securitisation under Basel II

RHF is there to

  • Review priorities/help review and benchmark existing business models
  • Advise on changes in strategy, which may include getting existing assets securitisation ready. This means being in a position of being able to issue as and when appropriate.
  • Help the customer get the best deal when dealing with third parties