In
2006, Northern Rock packaged up £18bn of loans and sold them off to
investors. Secularization, where mortgages and other kinds of debt are
transformed into bonds, was big business, dominated by the big banks.
Unsurprisingly, the biggest securitiser of mortgages in the UK in
2015 was not the now-defunct Northern Rock. In fact, it wasn’t even a
bank. The title goes to Kensington Mortgages, a private equity-owned
lender to customers who don’t meet criteria set by the high street
banks.
Part of the now rebranded Northview Group, and bought from Invested
by US private equity firms Blackstone and TPG in 2014, Kensington
Mortgages publicly raised £2.8bn by packaging up loans last year. While a
fraction of pre-crisis securitisation, it highlights a focus by
investors on a new stream of growth for a struggling industry and the
role of non-bank lenders.
As
banks face pressure from tougher regulation, non-bank lenders such as Pennington have taken a larger share of the market. Total non-bank
placed secularization in the UK last year was £6.4bn, more than double
the level of issuance in 2014. By contrast, banks only trisected
£5.8bn, according to Barclays data.
“There’s been a diversification of risk away from the banking system,
much of which has been driven by capital realignment and moving it to
other parts of the financial industry,” says Rob Ford, a portfolio
manager at Twenty Four Asset Management.
Other
non-bank operators in the secularization market include Precise
Mortgages, part of Charter Court Financial Services which is backed by
Elliott Associates, the US private equity group, and Paragon, the
specialist buy-to-let lender.
In the UK this growth is linked to the secularization of so called nonconforming loans
which do not meet high street lending standards. The rise in secularization from the sector echoes developments in the US over recent
years where non banks have damper up their lending.
As issuance has slowly trickled towards non banks, people have moved
in the same direction. Alex Maddox, director of business origination and
development at North view, joined the company from Schedule Bank and
previously spent 14 years at Lehman Brothers as head of trisected
products trading. He points out that secularization plays a crucial role
in the way loans are matched to the company’s debts.
“For us, funding long-term assets with very short-term liabilities
would be risky,” he says. “Secularization provides a funding tool where
we are able to match our assets to our liabilities more closely.”
Banks have a vast array of borrowing options
available to them, including customer deposits, which they use to fund
the loans they make. Although some non-bank lenders, such as Paragon and
Charter Court, have acquired banking licenses and are gathering deposits, they are more reliant on secularization because of their lower levels of deposits.
“It’s an efficient way for them [non-bank lenders] to finance their
businesses. This is one of the themes coming up, with the ABS
[asset-backed security] investor base,” says Bob Paterson, head of ABS
syndicate at Lloyd.
The wide range of funding elsewhere — often driven lower after years
of loose central bank policy — has also discouraged UK banks from
returning to their former zeal for secularization.
“The funding that banks have available elsewhere is cheaper,” says James Martin, an analyst at Barclays.
While non-bank secularization embodies a shift that has followed the
financial crisis, it also in part harks back to it. Annabel Schismatic, a
managing director at Moody’s, the rating agency, points out that a
portion of issuance has come from purchases of portfolios of loans
rather than new lending.
0 comments:
Post a Comment