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Full capital structure securitization makes tentative return to Europe

As the European securitization market slowly recovers, banks are printing full capital structure deals amid growing regulatory pressure and improving deal economics. However, some investors are not yet ready to buy.

Dutch and French banks have reopened the full capital structure securitization market, which allows banks to sell whole loan portfolios rather than adopt alternative strategies that can obtain capital relief but might be ineffective in reducing leverage – an important factor ahead of the new Basel III leverage ratio to be introduced in January 2015.

“Asset prices have rallied and there has been a lot of provisioning by some banks, which has put those institutions in a position to be able to sell at a profit,” says Olivier Renault, London-based head of structuring and advisory at adviser StormHarbour. “A couple of years ago securitization was more used to access the ECB funding window, but now the conditions are right and we are seeing more privately placed deals in a variety of formats.”

The business of off-loading toxic legacy assets from the financial crisis is now largely played out, but European banks are embarked on a longer-term path of deleveraging that comprises divesting non-core businesses and less valuable portfolios.

Banks have a choice over the way in which they divest, from synthetic risk transfers (in which the institution buys credit default protection on a portfolio) to securitizations, portfolio sales and the sale of whole businesses.

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