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Securitization: Will NatWest's deal backfire?

Britain's leading corporate banker needs a drastic solution to the problem of low margins. Rolling up 200 of the best loans and selling them as bonds is certainly that. But it has invoked a ferocious response from corporate treasurers and competitors. Brian Caplen reports on the controversy surrounding the deal

At first glance NatWest's new securitization deal is the perfect panacea to Europe's banking ills. Banks have complained long and hard that big-ticket corporate loans do not bring proper returns and are heavy users of capital. Securitizing $5 billion of them - as the British bank plans to do later this month - will free up credit lines and capital as well as generate risk-free income. Martin Owen, the chief executive of the bank's investment banking arm, NatWest Markets, describes it as a "golden scenario".

But that is only in theory. As news of the plan spread through the markets, it became clear that the practice may turn out differently. The NatWest deal, the first to include such a large number of high-quality corporate loans - some 200 - has come under fierce attack from corporate treasurers, competitors and academics.

Corporate treasurers complain the deal alters the basic relationship between a bank and its customers. A major difficulty is that while NatWest will continue to service the loans, it will now be doing so on behalf of bondholders, argue the treasurers. As a result it will be less sympathetic to a borrower in difficulties, they say.

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