BayernLB: The Future of European Securitisation - Georg J Huber

Georg J Huber, senior vice-president at BayernLB, outlines his predictions for the securitisation market, including which sectors and structures are in trouble and which still have a positive future.

According to analysts, prospects for the European corporate securitisation market are unlikely to improve this year as higher pricing, illiquidity and a damping of investor demand triggered by the credit crunch has reduced its appeal as a funding pool for companies.

Standard & Poor’s has stated that while the underlying performance of most European corporate securitisations is sound, the market remains under pressure. This follows a series of rating cuts to monoline insurers whose guarantees are used to boost the ratings of these bond issues, while the prospect of new issuance also remains constrained by volatile market conditions.

Corporate securitisation is an important funding tool for certain businesses, including real estatebacked companies such as pub chains, as well as regulated utilities.

However, investors and bankers are positive about its potential recovery. Georg J Huber, senior vice-president at BayernLB, which has two dedicated securitisation teams based in Munich, Germany and London, England, believes that the future lies in what he calls ‘real assets, tangible receivables’.

‘CDO, real estate and subprime, those are the buzzwords in the headlines all the time,’ he says. ‘Clearly that side of the business is in trouble but corporates will continue to see the appeal in securitisation as a financing tool. There are many banks involved in consumer finance that use it, and we’re finding our clients are really interested in those segments. They think asset securitisation, even in difficult times, can offer some advantages. BayernLB’s focus would be on those parts of the market that have become important for balance sheet management over the last couple of years.’

Huber believes what the securitisation market needs is simple structures and receivables that people can understand. He gives car loans, home shopping receivables and specialist industrial equipment as examples for the wider market.

‘Anything that offers a steady cashflow,’ he explains. ‘You can securitise these easily. I would even put regular mortgages and home loans into this category.’

BayernLB recommends that any company curious to know more about corporate securitisation should look closely at its receivables portfolio in the balance sheet. ‘A relatively diversified portfolio may be workable,’ Huber says. ‘A leasing company might look for types of assets that are homogeneous. You can also look into your subsidiaries with a view to identifying assets that are easily securitisable.’

He also says that companies must bear in mind the jurisdiction under which they carry out their contracts, as from a legal point of view, the assets need to be transferred to another party. ‘Companies should also have an idea of the historical data stored in their files about receivables, meaning how many customers have defaulted over time, how many of their clients are delinquent. What we regularly do is have a look into their data and the legal environment in which they operate, and come up with a structure, together with a clear idea of what it could cost to the client.’

Huber points out that although costs have increased, the same is true across all manner of product types. ‘The key is that more and more banks are working under the Basel II regime, so there is still an advantage to securitisation, in that specialists can offer very appealing interest rates, which are cheaper than the equivalent for other products.’

But BayernLB’s clients are not just looking at their balance sheets. ‘We’re finding that customers want to use securitisation as a funding alternative to a traditional working capital facility. As far as the bank is concerned I would say we are working to embed our offer into the overall client relationship. It’s not a one-off for us. It’s a cross-sold product that has to be part of our strategy. We know the clients have other products with the bank, so we’re incentivised to offer a really good service.’