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FUTURE TRENDS IN ITALIAN ABS. Marco Grimaldi, Dresdner Kleinwort Barcelona, 11 June 2007. What’s happened to those good old BOT people?. well… they’ve become ‘impatient’…. 50. Source: Osservatorio Assofin-Crif-Prometeia. 43.4. 45. 39.6. 36.4. 40. 34.6. 32.8. 35. 30. 25. 38.1.
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FUTURE TRENDS IN ITALIAN ABS Marco Grimaldi, Dresdner Kleinwort Barcelona, 11 June 2007
well… they’ve become ‘impatient’…. 50 Source: Osservatorio Assofin-Crif-Prometeia 43.4 45 39.6 36.4 40 34.6 32.8 35 30 25 38.1 34.1 30.6 28.4 20 26.3 15 10 5 6.5 6.2 5.8 5.5 5.3 0 2001 2002 2003 2004 2005 st household debt m/l household debt
… which means: the Italian Consumer market is still very attractive Fonte: Il Sole 24 Ore Fonte: Il Sole 24 Ore
…but it is changing rapidly • Mortgage Loans • self-certified, low DTI, high LTVs • liquidity loans • capped/discounted/fixed rate loans • Unsecured Retail Credit • pension-secured personal loans • quasi-prime borrowers • non-prime borrowers (credit impaired) Low Risk High Risk
Perspective on the Italian Sub-Prime Mortgage Market: a Reality?
Perspective on the Italian Sub-Prime Mortgage Market: a Reality? • Main drivers: • Potential dimension and transparency of the sub-prime market • Lender’s risk attitude and origination channels • Legal and economic framework
Consumer Loans: The Market Total Consumer Loan Stock in € bln 100 89.9 Source: Osservatorio sul credito al dettaglio Assofin-Crif-Prometeia 90 76.5 80 70 63.3 55.0 60 48.3 € bln 50 40 30 20 10 0 2002 2003 2004 2005 2006 • Favourable interest rate environment • Adequate risk-return profiles • Diversification of the funding sources • Enhanced efficiency of the loan origination procedures • Diversification of funding channels through networks and wholesalers in partnership
Consumer Loans: Typical Financing Structure of Italian Lenders Scenario 1 (small lender) Scenario 2 (medium/large lender) 1% 9% 36% 25% 30% 99% Securitisation bank loans secured loans Outright sale Outright Sale s/t facilities
Consumer Loans: Typical Securitisation Structure ABS Issue Portfolio Transfer Originator SPV ex lege 130/99 Capital Markets 2 1 Collections Fixed-to-floating Swap Servicing 4 3 5 Investment Bank Originator/ Servicer Loan Portfolio Collections 4 Swap back-to-back 5 MAIN ISSUES FOR SMALLER LENDERS Originator 1 Minimum size to execute an efficient public securitisation Liquidity of the ABS issue 2 Servicing track record and availability of data for the life cycle of the product 3 Collection procedures vs. requirements of the rating agencies 4 Hedge management and accounting 5
Consumer Loans: Main Hurdles and Solutions MAIN HURDLES POSSIBLE SOLUTIONS Minimum size to execute an efficient public securitisation warehouse 1 fungible issues Liquidity of the ABS issue 2 back-up servicer and credit scoring Servicing track record and availability of data for the life cycle of the product 3 Advance Facilities and Guarantees Collection procedures vs. requirements of the rating agencies 4 Balance Guaranteed Swaps, Hedge Accounting Hedge management and accounting 5