ABS & Covered Bonds: role in the funding mix and impacts on the borrower

Transcription

1 ABS & Covered Bonds: role in the funding mix and impacts on the borrower March 2014 Date

2 Secured funding: an ingredient to the funding mix Wholesale MLT funding structure Breakdown as of December 31, 2013 Securitization and covered bonds are components of wholesale MLT funding which itself is one of the components of stable funding Source: BNP Paribas fourth quarter 2013 results 2

3 Securitization Covered bonds Pure ABS Current market ABS Covered bonds Funding Y Y Y Maturity mismatch N Y (RMBS) N (Auto ABS) Y Double recourse for investors N N (but ) Y Risk transfer Y N N Accounting deconsolidation Y N N 3

4 Securitization Covered bonds: regulatory impacts (1/2) Asset encumbrance Securitization and covered bonds both generate asset encumbrance -> secured funding to be used with measure even if nominal spreads are lower than unsecured spreads LCR Securitization and covered bonds both have negative effects (compared to unsecured funding) on the parent company s LCR due to the existence of rating triggers NSFR There is no more preferential treatment for residential loans used as collateral in securitization or covered bonds transactions 4

5 Securitization Covered bonds: regulatory impacts (2/2) Solvency ratios Securitization can theoretically improve your RWA No impact with covered bonds Accounting deconsolidation Securitization can theoretically decrease the size of your balance sheet No impact with covered bonds 5

6 Economic rationale for securitization : funding View from a global universal bank Funding diversification Local wholesale funding without unsecured spread cannibalization Lengthening of funding maturities in emerging markets Risk transfer Accounting deconsolidation Securitization mimics the sale of a loan portfolio, which is useful when the counterpart is unable to purchase the portfolio directly 6

7 Economic rationale for securitization : liquidity reserve View from a global universal bank Retained securitizations Can be used as collateral for repo transactions with the ECB and market counterparts which is a quick way to get external funding in a time of crisis Key component for building the liquidity reserve which is essential for a sustainable development Source: BNP Paribas first quarter 2013 results 7

8 Unfavorable regulatory treatment for securitization Covered bonds get a more favorable treatment: e.g. lower ECB haircuts, lower Solvency II capital charge EIOPA December 2013 capital charge proposals Securitisation Corporate Bond Corporate Bond Covered Bonds (AAA) (AA) (A) (AAA) 1Y 4.3% 1.1% 1.4% 0.7% 3Y 12.9% 3.3% 4.2% 2.1% 5Y 25.8% 5.5% 7.0% 3.5% The covered bond market is bigger than the ABS market which has a more limited number of investors Direct impact on prices: 50 bps spread between a AAA covered bond and a AAA securitization using the same type of assets from the same originator 8

9 But showing signs of improvement Efforts have been made to put securitization in a more favorable light ECB ABS loan-level initiative (EDW) PCS label Improvement of ECB haircuts on ABS Haircut prior to October 2013 on AAA to A- ABS: 16% Haircut since October 2013 on AAA to A- ABS: 10% Rating agencies methodologies have been reviewed and updated More vanilla ABS than in the past Auto loans ABS are repeat deals: VCL, Autonoria 9

10 A light at the end of the tunnel? Mario Draghi, President of the ECB March 6, 2014 press conference If we consider just the revitalisation of the ABS market, there are many things that need to change in regulation and in legislation. Today, the capital charges for ABS discriminate ABS unfavourably with respect to other instruments with similar degrees of riskiness. The current capital regulation of ABS was calibrated on a reality which is not the European one. 10