Securitisation Summit A Case Study by Simon Stockley 29th November 2001 Presentation Summary Overview : SAHL What is SAHL? Activities since launch Securitisation Defined Global growth
Structure Strategic advantages Case Study Product Positioning Funding Way forward Banking establishments are more dangerous than standing armies Thomas Jefferson Except for con-men borrowing money they shouldnt get, and widows who have to visit with handsome men in the trust department, no sane person ever enjoyed visiting a bank
Martin Mayer What is SA Home Loans? The first South African company to discount home loans on a national basis. The first South African company to fund its loan book through the internationally recognised practice of securitisation. The first South African company to operate with a transparent pricing policy with regard to home loans. What is SA Home Loans? It is a management organisation that links
institutional investors with borrowers. The company is owned by Peregrine Holdings Limited, Chase JP Morgan, Standard Bank, International Finance Corporation (the commercial arm of the World Bank), International Bank of SA (co-owned by Banque Nationale de Paris & Dresdner Bank), and Management. SA Home Loan Shareholders South African Home Activities since launch: February 1999 Loans Number of loans processed : 15 000
Value of loans processed : R 5 billion Value of loans approved : R 2 billion Breakdown by region :
Gauteng 30% KZN 35% W Cape 35% (As at 01 November 2001) Securitisation Defined Definition The packing of individual loans and other debt instruments, converting the package into a security, enhancing its credit for the further sale to a third party. Kendall Securitisation Defined The effect then is .
The conversion of illiquid individual loans to marketable securities, which are generally asset backed. Securitisation Defined In practical terms Securitisation pulls apart financial transactions and allocates the risk and rewards to those entities that are best able to accept and therefore price for them. Securitisation Defined But what does securitisation actually do . Gets more money into the economy to lend.
Gets more money into the country to lend. Allows for cheaper funding so consumers benefit. Allows for diversified funding options and pricing for risk so investors benefit. Securitisation Defined Continued ... Bypasses the traditional intermediaries and links borrowers directly to money and capital markets. Disintermediates the entire financial market and encourages competitive forces. Securitisation Some Facts Securitisation is Americas most reliable source of low cost finance.
In the USA, half of all home loans are presently funded through securitisation and one fifth of motor and credit card receivables. In 1998 half of Chryslers corporate debt was funded through securitisation. The pace of growth in structured products continues to attract substantial global investor interest Total Issuance Average annual growth of 32% Securitisation Market Size Western Europe $31 billion Asia $9 billion
Latin America $1 billion Non-US Asset Backed $41 billion in 1997 Geographic Expansion & Product Innovation Securitisation BOAT LOANS COLLATERAL MORTGAGE OBLIGATIONS
RESIDENTIAL MORTGAGES 1970s USA COMMERCIAL MORTGAGES Early 1980s EMBEDDED VALUE SOCIAL HOUSING LOANS EXPORT
RECEIVABLES SUB-PRIME AUTO LOANS STUDENT LOANS HEALTH CARE RECEIVABLES EQUIPMENT LEASES DELINQUENT TAXES
INSURANCE PREMIA ENTERTAINMENT RECEIVABLES RVs UTILITY RECEIVABLES SMALL BUSINESS LOANS HOME EQUITY LOANS
UK Canada Late 1980s FRANCE Early 1990s SPAIN NETHERLANDS VENEZUELA MEXICO Mid 1990s GERMANY, ITALY, TURKEY,
ARGENTINA, BRAZIL, INDONESIA, MALAYSIA, THAILAND, SOUTH KOREA, PHILLIPINES, CHINA ETC. This year has seen a breakthrough in South Africa Domestic Securitisation dates from 1989 1989 1989 R250 million (United Building Society, pt of ABSA Group). Bank mortgages.
1992 1992 R85 million (Sasfin Ltd): Corporate lease rentals. 1997 1997 National Housing Finance Corporation (announced). Non-bank mortgage for lower & middle income Kiwane. R450 million in AA-rated collateralised debt groups. obligation. SA Home Loans. Non-bank residential mortgage securitisation. (R1.25 Billion) 2000
2000 2001 2001 Structural Impediments Banks - cash rich. Big is best. Rating agencies. Exposure to international markets. Historically little incentive for banks to securitise.
Origination Impediments Need to originate. Time to originate. Cost associated with origination. Registration process. Costs of transferring assets. Information Technology Impediments Lack of silver bullet applications. Costs. Integration.
SA Home Loans A case study The product. Its positioning. Funding. The Product 20 year, variable rate, reducing term mortgage. No prepayment or redemption penalties. Discounted legal and administrative fees. No ongoing administrative charges. Re-advance facility twelve times a year. Fixed margin above cost of money. Positioning
How much will I save monthly? Get a discount on your home loan for life Monthly Savings R300 000 R200 000 R100 000 1.00% R235 R158
R79 1.50% R254 R236 R118 2.00% R471 R314
R157 2.50% R587 R391 R196 3.00% R703 R464 R234
Traditional Bank Funding Reserving Requirements Deposits Bank Margin : 4 - 5% Loans To Public Securitisation Structure Control
Independent Trustee Public Loans To the Public JIBAR Rate Special Purpose Vehicle Trust External Auditor
Senior Securities Institutional Investors Subordinated Securities Purchase Securities Plus 2.1% 1.6% Yield pick up Origination & Management Fee : 0.5%
Proposed SAHL Legal Structure SECURITIES AND AGREEMENTS THE PUBLIC SA HOME LOANS Public SPECIAL PURPOSE VEHICLES SPV MORTGAGE BACKED SECURITIES
INSTITUTIONAL INVESTORS Senior MBS INVESTORS Junior MBS Public Senior MBS Public SPV Junior MBS Public
Senior MBS SPV Public Short Term Insurer Life Insurer SAHL Interim Funder
External Directors INVESTORS Junior MBS Auditors MARKET MAKER Investment Structure MBT 1 Public A Class
92 % Special AAA Rating Purpose JIBAR + 20/100 Points Vehicle B Class R1 Billion 8%
BBB Rating JIBAR + 200/300 Points 0.5% Management Fee Loans JIBAR + 2.1% SAHL C Class 2.5 % Unrated Pay away Standard Bank Deloitte & Touche
Standby Administrator 1.6% to investors General Observations True sale to remove from balance sheet and to make insolvency remote. Quality of asset pool. Role of rating agencies. Investor support. Will Investors buy? Yield enhancement. Portfolio diversification. Rating. Liquidity.
Privatisation/shortage of quality script. The Strategic Advantages Diversify funding base access to new sources of funding less reliance on bank lending. Lower cost of funding to originator and consumer. Off balance sheet treatment/Capital relief. Allows unrated / poorly rated originators to access capital markets. The Strategic Advantages Continued ... Optimises the use of scarce capital resources. Transcend the sovereign risk ceiling. Allows pricing for risk. Securitisation is increasingly being used as a
tool to achieve the issuers broader objectives Maximise Capital Efficiency Credit management By selling assets, some institutions are able to reduce their exposure to certain industries &/or names Grow assets under management Using CBOs, fund managers can increase funds under management without inflating the balance
sheet Alternative &/or cheaper finance In some cases, ABS issuers achive ratings above their unsecured or country ratings. Issuers can also benefit from investor diversification Capital Relief Securitized assets are sold into a vehicle for off balance-sheet treatment, thereby releasing capital held
against them Improving Return on Equity & managing regulatory capital efficiently is a growing concern among financial institutions & publicly held corporations. Asset/Liability Management Match-fund term sheets through issuance of variety of currencies & bases. Reduce Leverage of Balance Sheet With the proceeds of the sale of
the assets, some originators may choose to pay off their outstanding debt. Why the Securitisation Model? Ability to access capital markets directly. Unbank lending. Pricing for risk. Funding diversification. The Way Forward Increased activity MBS market placements. Investor education. Growth secondary market listing bond exchange. Cross border applications ability to bridge sovereign risk ceilings.
Expansion to other asset classes. Greater product diversification. Thank you. Simon Stockley CEO - SAHomeloans (Pty ) Ltd Phone : (031) 560 5392 Fax : (031) 562 4266 Cell no : 083 276 0068 e-mail : simons @sahomeloans.com
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