US investor appetite set to drive more European SRT trades
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US investor appetite set to drive more European SRT trades

Basel-endgame pushback has reduced the urgency for US banks to relieve capital, but investor appetite for significant risk transfer trades is spilling over to Europe.

Fed chairman Jay Powell at the House Financial Services Committee in March | Photo: Reuters

European banks are enjoying higher subscription levels and lower pricing for significant risk transfer (SRT) trades this year. This is down to booming demand for capital-relief instruments from US funds, market participants say.

Synthetic securitization makes up more than 80% of SRT deals, according to European Central Bank data. In 2023, this type of SRT issuance reached around $25 billion globally over reference loan portfolios totalling over €300 billion, Pemberton Asset Management estimates, excluding public-sector issuance. Synthetic SRT securitization deal numbers have been steadily increasing, from just 13 in 2010 to 115 in 2023.

SRT deals tend to be bunched towards the end of the year, as banks seek the benefit of capital relief in full-year results. Synthetic deal volumes of around $10 billion in the first half of this year, therefore, mean 2024’s increase could continue a trend of consistent 20% annual increases since 2010, says Olivier Renault, Pemberton’s head of risk sharing strategy.

Until now, about 75% of issuance has come from European banks, according to Renault.


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