Securitisation in European Loans and Credit

• Market analysis
  
• Opportunities for development
  
• Implications

Chapter 1 analysis of the European
securitization market

• Summary
  
• Introduction
  
• Sizing securitization markets
  
• Measuring the market over time
  
  • Volumes and values of securitization over time
  
  
  
• Segmenting the market by issuer type
  
• Segmenting the market by asset category
  
  • Conclusions for a changing market
  
  
  
• Key players in securitization
  
  • Loan originators

• Summary
  
• Introduction
  
• Mortgages
  
  • Size and growth of the European mortgage market
    
  • Germany and the UK hold almost 60% of total outstanding mortgage credit
    
  • The Portuguese, Spanish and Greek markets grew by more than 20%
  
  
  
• Mortgage types
  
  • Fixed rate mortgages represent more than two thirds of the European retail
    mortgage portfolio
    
  • Countries with high or unstable rates tend to be dominated by
    variable rate loans
    
  • Competition has increased throughout Europe, improving products and
    services
    
  • New product features are needed to attract customers
  
  
  
• Unsecured personal lending
  
  • Size and growth of other personal unsecured lending markets in Europe
    
  • Germany and the UK have the largest amounts of personal loan
    credit outstanding
    
  • Banks will continue to rely on simple unsecured personal loans
    
  • Many personal loans in European markets are no longer competitive
    
  • There is, however, a market for personal loans
    
  • New providers are finding personal loans an easy route for poaching
    business
    
  • Lower cost base of telephone operations allow lower interest rates
    
  • Price is a key factor in the personal loan market
    
  • The emergence of internet distribution
    
  • Assessing the potential of European unsecured personal loans
    
  • Italy and Germany are the most attractive market for simple personal
    loans
    
  • France, Spain and the UK also have opportunities but personal loans
    will need to be innovative
  
  
  
• Credit Cards
  
  • Size and growth of the top European credit card markets
    
  • The UK is the only country which has a developed culture of
    revolving credit on credit cards
    
  • The number of cards in the UK is growing more slowly than all other
    
  • European markets
    
  • Differences in the markets become clear when the average value per
    transaction is analyzed
    
  • Belgian, Italian and Dutch consumers tend to use cards for credit…
    …But UK, Spanish, French and German consumers use cards more
    for payment
    
  • Other European countries are yet to follow the UK revolving credit
    model
    
  • Consumer attitudes towards credit cards
    
  • Competition will force greater risk acceptance among European
    banks
    
  • Competition in credit cards is normally on more than just price
    
  • There are a variety of extra features which can be added on to credit
    cards
    
  • The threat of foreign entrants
    
  • Revolving credit - to issue or not to issue?
    
  • Cutting the links between accounts and cards
    
  • Size and growth of the top European motor finance markets
    
  • The motor finance market has three key competitors
    
  • Motor finance distribution
    
  • Point of sale distribution
    
  • New distribution channels undermine the point of sale
    
  • Conclusions and key strategic implications
    
  • Captives have increased the pressure on finance houses, and are now
    turning on the banks
    
  • The used car market holds the key to captives' advance
    
  • Opportunities in European motor finance
    
  • Italy offers the most opportunities for new car finance
    
  • The potential for used car finance
    
  • Spain offers the most opportunities in used car finance
  
  
  
• Chapter data tables
  
  • Mortgages
    
  • Unsecured personal loans
    
  • Credit cards
    
  • Motor finance

Chapter 3 Opportunities for development

• Summary
  
• Introduction
  
• How Securitization works
  
  • Converting assets into cash
    
  • The borrower
    
  • The originator
    
  • The special purpose vehicle (SPV)
    
  • The underwriter
    
  • The investors
    
  • The servicer
    
  • The credit enhancer
  
  
  
• A brief history of securitization
  
  • Origins in the US
    
  • GNMA (Ginnie Mae)
    
  • FNMA (Fannie Mae)
    
  • FHLMC (Freddie Mac)
  
  
  
• Why securitize?
  
  • Benefits of securitization
    
  • Freeing of capital
    
  • Cash flow stability and liquidity enhancement
    
  • Off balance-sheet funding
    
  • High risk primary markets
    
  • Economic benefits
    
  • Disadvantages of securitization
    
  • Interest rate / funding risks
    
  • Servicing risk
    
  • Moral hazard
    
  • Wider disadvantages associated with securitization
  
  
  
• European securitization is at last beginning to perform
  
  • A history of growth predictions, but no boom
    
  • Reasons for slow growth in European markets
  
  
  
• European securitization overview
  
  • Denmark
    
  • France
    
  • Germany
    
  • Italy
    
  • Spain
    
  • Sweden
    
  • The US still dominates international comparisons
  
  
  
• Key drivers of securitization
  
  • Funding issues - deposit margins
    
  • Tier one capital and capital assets ratios
    
  • New entrants in mortgages, credit cards and personal credit markets
    
  • Competition in retail banking
    
  • European Monetary Union will continue to fuel market growth

Chapter 4 Implications

• Summary
  
• Forecasts for securitization
  
  • Introduction
    
  • The market will grow… …but growth will be gradual rather than dramatic
    
  • The inter-relation of assets
  
  
  
• The impact of securitization on mortgage lending
  
  • Impact upon prices
    
  • The extent of the impact may not be that great for some time
    
  • Smaller lenders could be the most active
    
  • The twin effects of new channels and securitization could be powerful
  
  
  
• The impact on other lending markets
  
  • Profits, not prices in credit cards and personal loans
    
  • Independent motor financiers will be joined by the captives
  
  
  
• Conclusions

Chapter 5 Appendix

• Glossary
  
  • Accrual bonds
    
  • Amortizing and non-amortizing assets
    
  • Amortizing and non-amortizing issuance structures
    
  • Asset-backed security (ABS)
    
  • Bullet structures
    
  • CLOs, CBOs, and other structures
    
  • Collateralized mortgage obligations (CMO)
    
  • Companion, or support, tranches
    
  • Credit card
    
  • Credit rating agency
    
  • Floating-rate tranches
    
  • Fixed rate tranches
    
  • Interest-only (IO) securities
    
  • Loan originator
    
  • Mortgage ABS
    
  • Motor finance
    
  • Non-mortgage ABS
    
  • Pass-through
    
  • Planned amortization class (PAC) tranches
    
  • Principal-only (PO) securities
    
  • Rating enhancement
    
  • Residential mortgage
    
  • Residuals
    
  • Retail securitization
    
  • Securitization
    
  • Sequential-pay or "plain vanilla" tranches
    
  • Structured finance
    
  • Targeted amortization class (TAC) tranches
    
  • Tranche
    
  • Z-tranches

Index

List of Figures

• Figure 1.1: Value of MBS in Europe by country, 1998-9
  
• Figure 1.2: Value of non mortgage ABS in Europe by country, 1998-9
  
• Figure 1.3: Total number and value of issues in the UK, 1987-99Q2
  
• Figure 1.4: Average retail issue value in the UK, 1987-99Q2
  
• Figure 1.5: Retail ABS originator by type in the UK
  
• Figure 1.6: UK retail securitization transactions by asset type, 1987-99Q2
  
• Figure 1.7: Composition of retail issues, 3 year moving average
  
• Figure 1.8: Identified European securitization by originator, 1999-2000
  
• Figure 1.9: Total retail ABS issues by originator in the UK, 1987-99Q2
  
• Figure 2.10: Outstanding European Retail Credit
  
• Figure 2.11: Germany and the UK hold almost 60% of total outstanding mortgage credit in Europe,
  1998*
  
• Figure 2.12: The Portuguese and Spanish mortgage markets have exhibited the fastest growth in the
  last six years
  
• Figure 2.13: Fixed-rate mortgages have grown in Europe due to falling interest rates, 1998
  
• Figure 2.14: Personal loans make up the majority of retail non-mortgage credit except in Belgium
  and the Netherlands, 1998
  
• Figure 2.15: Germany and the UK have the largest other retail unsecured lending markets, 1998
  
• Figure 2.16: Unsecured personal loan distribution in the UK, 1998
  
• Figure 2.17: The amount of credit outstanding on UK retail credit cards dwarfs that in all other
  European countries, 1998
  
• Figure 2.18: The UK market has the highest number of cards in issue but the lowest CAGR, 1992-8
  
• Figure 2.19: Germany has the lowest average value per transaction, 1998
  
• Figure 2.20: Europe will not necessarily adopt revolving credit, 1999
  
• Figure 2.21: Germany accounts for nearly half the motor finance outstanding in the key European
  markets, 1998
  
• Figure 2.22: The UK has a particularly high volume of usedcar finance contracts, 1998e
  
• Figure 2.23: Germany and the Netherlands have considerably more motor finance outstanding per
  capita than other European countries
  
• Figure 2.24: Italy has the highest potential for new car finance
  
• Figure 2.25: Spain has the highest potential for used car finance
  
• Figure 3.26: Global ABS issues by value, 1998
  
• Figure 3.27: Capital adequacy of top 30 European banks, 1998

List of Tables

• Table 1.1: Value and volume of European MBS transactions, 1998-9
  
• Table 1.2: Value of European non-mortgage ABS transactions, 1998-9
  
• Table 1.3: Identified retail issue values, volume and average value in the UK, 1987-99
  
• Table 1.4: Identified European securitization by originator, 1999-2000
  
• Table 1.5: Total retail ABS issues by originator in the UK, 1987-99Q2
  
• Table 1.6: Fixed and variable rate dominated countries in Europe, 1998
  
• Table 1.7: Value of retail mortgages outstanding, 1993-8
  
• Table 1.8: Top 40 retail mortgage lenders in Europe, 1998
  
• Table 1.9: Segmentation of retail non-mortgage credit, 1998
  
• Table 1.10: UK interest rate of unsecured loan by distribution channel, 1995&8
  
• Table 1.11: Number of cards in issue, 1993-8
  
• Table 1.12: Value of transactions, 1993-8
  
• Table 1.13: Average value of transactions, 1993-8
  
• Table 1.14: Credit card credit outstanding per capita, 1998
  
• Table 1.15: Motor finance credit outstanding by country, 1998
  
• Table 1.16: Total number of cars financed, 1998e
  
• Table 2.17: Global ABS issues by value, 1998
  
• Table 2.18: Capital adequacy of top 30 European banks, 1998