We can’t help but wonder if our stateside financiers aren’t taking note of the hottest new trend in across-the-pond high finance: securitization on the balance sheet. The Financial Times’ Gillian Tett notes that an increasing number of lenders are opting to turn their loans into bonds, and are keeping them on their balance sheets to boot:
“We recognise that, at the moment, these bonds are illiquid, so we are [retaining] them right now,” explains Gary Cowdrill, group finance director of West Bromwich, who says the process of securitising these instruments was started several months ago before the worst of the credit crunch hit. It is a pattern that is now being echoed by many other banks, not just in the UK but the rest of Europe too … Thus a ratings agency such as Moody’s reports that, while it has not been asked to issue many public RMBS in Europe in recent months, it has continued to provide ratings on balance sheet deals. By the end of March, it had issued ratings on 16 RMBS, worth around $24bn, of which “at least 90 per cent are balance sheet deals”, says Moody’s.
Color us intrigued. The reason for the trend isn’t too hard to fathom: a scheme cooked up by the Bank of England and European Central Bank will allow the lenders to use securitized bonds to tap repurchase operations or swap deals and gain access to that precious, rarest of things in the current market: liquidity. Come to think of it, there is a little scheme here in the States that sounds oddly familiar …
