Overview of securitisation activities in Ireland Clive Jackson OECD WPFS, Securitisation Workshop, 27-28 May 2010

Overview of securitisation activities in Ireland

Clive JacksonOECD WPFS, Securitisation Workshop, 27-28 May 2010

Overview of securitisation activities

• Quarterly data collected under FVC Regulation (ECB/2008/30) from Q4 2009

• 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

• Data collected allows the first analysis of activities of domiciled vehicles which are unconnected with the domestic banking sector

• Main discussion point: the usefulness of qualitative information for analysis

Background• Legal framework

– 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– 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• 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.

0%

5%

10%

15%

20%

25%

30%

0

5

10

15

20

25

30

35

40

45EUR billion

Securitised mortgages (LHS scale)

Securitised mortgages as percentage of outstandning mortgages (RHS scale)

First period of growth

Second period of growth: originate and distribute

Post-crisis growth: internal securisations

FVC Regulation ECB/2008/30

• Quarterly collection from resident FVCs from Q4 2009– 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

• Requirement covers balance sheet, financial transactions and loan write-downs

– 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– 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• Official register of FVCs maintained by the National Central Banks and ECB –

the nature of securitisation must be provided

• Also, FVCs were requested to categorise their activities: e.g. Residential MBS, Consumer ABS, CDO, etc.

• 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

• Together – nature of securitisation and type of activity – provides a useful picture of the sector and tool for analysis

Nature of securitisation• FVC Regulation: sector balance

sheets aggregated on the basis of the nature of securitisation:

– True-sale (or traditional)– Synthetic– ‘Other’ FVCs

• ‘Other’ category contains hybrid FVCs (carrying out both true and synthetic securitisations), and some vehicles where the nature is to be confirmed.

True-sale72%

Synthetic19%

Other9%

Nature of securisation (by total assets)

Activities of FVCs

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20

40

60

80

100

120

140

Residential MBS Commercial MBS Consumer ABS Corporate ABS CDOS/CLOs Multi-issuance programmes

ABCP conduits Other

EUR billion

True-sale FVCs Synthetic FVCs Other FVCsNote: Prelimary data

Residential MBS• Most assets are securitised loans, of course

• Some synthetic securitisations are also included.

– General point: Synthetic securitisations may not always be fully funded – important in thinking about credit risk transfer.

• Other assets relate to RMBS securitisations where the issuing FVC is in Ireland, but loans held in FVC elsewhere

• Originators: mostly euro area banks– Very little by OFI (non-bank mortgage

providers) 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Residential MBS

Remaining assets

Fixed assets

Financial derivatives

Shares and other equity

Other securitised assets

Securities other than shares

Securitised loans

Deposits and loan claims

Commercial MBS• 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)

• We have recorded originating/servicing bank linked to the FVC to help this process

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Commercial MBS

Remaining assets

Fixed assets





Securitised loans


Consumer ABS• Not a feature domestically

• Small volumes compared to mortgage securitisations

• Mix of euro area bank and non-euro area originators

• Includes securitisations of auto loans, credit card debt.

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Consumer ABS

Remaining assets

Fixed assets





Securitised loans


Corporate ABS• Broad in terms of originators. Sometimes

linked to specific NFC company or group

• Securitisation of trade or other receivables

• Securitisations of leases

• Smallest FVC average size (by total assets)

• Interesting in terms of alternatives to bank financing and unsecured forms of financing

• Security-by-security data may be useful (where available)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Corporate ABS

Remaining assets

Fixed assets





Securitised loans


CDOs and CLOs• These make up the largest proportion of

vehicles

• FVCs balance sheets can be used to determine if they are Collateralised Loan Obligations, as opposed to other type

• 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

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Cash CDO Synthetic CDO

Remaining assets

Fixed assets





Securitised loans


Asset Backed Commercial Paper• Mostly vehicles purchasing assets as part of a

programme with the CP issuer elsewhere (e.g. USA)

• Profile of debt securitised issued is less than one year

• Large average size (around €1.5bn)

• Interesting in terms of links to arranging banks and other FVCs (often in other jurisdictions)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

ABCP

Remaining assets

Fixed assets





Securitised loans


Multi-issuance programmes• One FVC (Multi-Issuance Vehicle) may be used

for a programme of note issuances (numbering perhaps dozens)

• Collateral for each series is ring-fenced through contracts to a specific issuance – issuances are made independent and bankrupt-remote from each other

• Similar to programmes available in Luxembourg, but there each issuance (‘compartment’) is a separate legal entities

• MIVs can issue both true and synthetic series within the one vehicle 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Multi-Issuance programmes

Remaining assets

Fixed assets





Securitised loans


Other activities• Miscellaneous other category for the moment

• Some FVCs not assigned to any category

• Also includes FVCs set up by international institutions to warehouse banks’ “bad assets”

• It will include the Irish version of same, which is also using a number of FVCs

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Other

Remaining assets

Fixed assets





Securitised loans


Conclusion

• FVCs are a very heterogeneous group. – 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

• Good news: – 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:– 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 youThank you.

Questions?

Appendix 1: Comparison of assets by FVC activity

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

ABCP

Cash CDO

Commercial MBS

Consumer ABS

Corporate ABS

Multi-Issuance programmes

Other

Residential MBS

Synthetic CDO

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

Appendix 2b: Breakdowns collected under ECB/2008/30

Documents

Overview of securitisation activities in Ireland Clive Jackson OECD WPFS, Securitisation Workshop, 27-28 May 2010