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UK RMBS: A step in the right direction

Lloyds’ bumper RMBS is good news but it doesn’t fix the market.

Lloyds Banking Group’s announcement in late September that it was to issue a prime UK RMBS deal was the news that the European ABS market had wanted for two years. Bankers clung to the mantra that everything would be OK if one of the big mortgage originators could successfully issue a large deal as the market disappeared overnight in 2007 and became a single-investor (the European Central Bank) product. So now such a deal is here is everything OK again? That’s wishful thinking.

On September 23 Lloyds issued a £3.6 billion ($5.7 billion) RMBS from the Permanent Master Trust that it inherited from HBOS in a deal jointly run by Lloyds, JPMorgan and Barclays Capital. It involved three class A tranches: two five-year soft bullet £1.65 billion sterling tranches and a €750 million tranche. One of the sterling tranches (class A1) was retained by Lloyds to be used for a securities lending transaction with an affiliate of JPMorgan and the other (class A2, which was increased from an initial £1.25 billion) publicly placed along with the A3 euro tranche.

Despite the rally in the ABS markets in recent months, getting this deal done was a big achievement.

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