Overview of securitisation activities in Ireland

1. Overview of securitisation activities in Ireland Clive Jackson OECD WPFS, Securitisation Workshop, 27-28 May 2010

2. Overview of securitisation activities • Quarterly data collected under FVC Regulation (ECB/2008/30) from Q4 2009 • Ireland is one of the primary locations for FVCs in the euro-area (over 800 entities) in terms of total assets and range of activities • Data collected allows the first analysis of activities of domiciled vehicles which are unconnected with the domestic banking sector • Main discussion point: the usefulness of qualitative information for analysis

3. Background • Legal framework • Current framework comes under Section 110 of the Taxes Consolidation Act 1997, as amended by Section 48 of the Finance Act 2003 • “Section 110s” must register with the Revenue Commissioners, they may then utilise certain treatments to ensure tax neutrality • Very broad range of financial assets may be held – e.g. equities, bonds, receivables, leases, derivatives (synthetic transactions) • A qualifying company may not hold property (although could own shares in a property holding company) • Securitisation carried out by Irish banks • First securitisation of IR£200mn in 1996. Current outstanding securitised mortgages c. €37bn • Securitisation is also possible through covered bonds. Enabled by 2001 legislation, first carried out in 2004. Loans may be transferred to a designated “mortgage bank” under the 2001 legislation, which may then issue Asset Covered Securities. FVCs are not used – loans stay on the MFI balance sheet.

4. RMBS originated by Irish banks • First period of growth : Predominantly used by specialist mortgage lenders in early stages. • Second period of growth : Originate and distribute model - important role in filling funding gap and facilitating period of strong credit growth. • Third period of growth: Securitisation activity has accelerated despite freezing of market post-crisis – “internal securitisations” used by MFIs to create eligible assets for refinancing operations.

5. FVC Regulation ECB/2008/30 • Quarterly collection from resident FVCs from Q4 2009 • Reporting agents on behalf of FVCs may be the administrator, collateral manager, bank • Central Bank of Ireland deadline: T+19 days • Transmission to ECB: T+28 days • Requirement covers balance sheet, financial transactions and loan write-downs • Reporting agents may use quarterly/monthly investor reports (or similar) to compile returns, even if the reference date does not match reporting date • Security-by-security reporting of debt securities holdings • Reduced reporting requirement for smaller vehicles • For FVCs with total assets under €180 million at end-Q4 • Provide one figure – total assets – and a list of ISIN codes in issue • Applies to over one third of FVCs • However, these together make up less than 5% of total assets for the sector as a whole

6. Information on FVC activities • Official register of FVCs maintained by the National Central Banks and ECB – the nature of securitisation must be provided • Also, FVCs were requested to categorise their activities: e.g. Residential MBS, Consumer ABS, CDO, etc. • Where this information is not provided or not sufficiently clear, this is supplemented with information from alternative sources, e.g. the prospectus, audited annual accounts, etc • Together – nature of securitisation and type of activity – provides a useful picture of the sector and tool for analysis

7. Nature of securitisation • FVC Regulation: sector balance sheets aggregated on the basis of the nature of securitisation: • True-sale (or traditional) • Synthetic • ‘Other’ FVCs • ‘Other’ category contains hybrid FVCs (carrying out both true and synthetic securitisations), and some vehicles where the nature is to be confirmed.

8. Activities of FVCs Note: Prelimary data

9. Residential MBS • Most assets are securitised loans,of course • Some synthetic securitisations are also included. • General point: Synthetic securitisations may not always be fully funded – important in thinking about credit risk transfer. • Other assets relate to RMBS securitisations where the issuing FVC is in Ireland, but loans held in FVC elsewhere • Originators: mostly euro area banks • Very little by OFI (non-bank mortgage providers)

10. Commercial MBS • Mostly originated in the euro area (outside Ireland) or by a Rest of World originator • Over 40 FVCs are using a derogation providing full breakdowns for loans originated and serviced by euro area MFIs • Instead these breakdowns will be collected from banks by National Central Banks • Data exchange between National Central Bank and domicile of FVC (facilitated by ECB) • We have recorded originating/servicing bank linked to the FVC to help this process

11. Consumer ABS • Not a feature domestically • Small volumes compared to mortgage securitisations • Mix of euro area bank and non-euro area originators • Includes securitisations of auto loans, credit card debt.

12. Corporate ABS • Broad in terms of originators. Sometimes linked to specific NFC company or group • Securitisation of trade or other receivables • Securitisations of leases • Smallest FVC average size (by total assets) • Interesting in terms of alternatives to bank financing and unsecured forms of financing • Security-by-security data may be useful (where available)

13. CDOs and CLOs • These make up the largest proportion of vehicles • FVCs balance sheets can be used to determine if they are Collateralised Loan Obligations, as opposed to other type • Diversity of structures and strategies, including: • Vehicles with ‘static’ portfolios • Vehicles with ‘managed’ portfolios with an active investment manager • Variety of strategies and motivations • Loan syndications • Challenges in assigning originators

14. Asset Backed Commercial Paper • Mostly vehicles purchasing assets as part of a programme with the CP issuer elsewhere (e.g. USA) • Profile of debt securitised issued is less than one year • Large average size (around €1.5bn) • Interesting in terms of links to arranging banks and other FVCs (often in other jurisdictions)

15. Multi-issuance programmes • One FVC (Multi-Issuance Vehicle) may be used for a programme of note issuances (numbering perhaps dozens) • Collateral for each series is ring-fenced through contracts to a specific issuance – issuances are made independent and bankrupt-remote from each other • Similar to programmes available in Luxembourg, but there each issuance (‘compartment’) is a separate legal entities • MIVs can issue both true and synthetic series within the one vehicle

16. Other activities • Miscellaneous other category for the moment • Some FVCs not assigned to any category • Also includes FVCs set up by international institutions to warehouse banks’ “bad assets” • It will include the Irish version of same, which is also using a number of FVCs

17. Conclusion • FVCs are a very heterogeneous group. • Analysis of the sector is greatly enhanced by additional qualitative information on the vehicle • This information also helps spot where some items may be reported incorrectly • Good news: • Even high level information is useful, but more detailed info may be available without too much effort ... • Some information may already be available within Central Banks (e.g. for eligible collateral) or Regulators (supervision of banks and their exposures) • A lot is available publicly, or from commercial providers, stock exchanges, etc • Can this be exploited at a euro-area level? • Opportunities: • Additional information on linkages between FVCs would be useful to compilers • Information on links between FVCs and their MFI sponsors/arrangers would be useful for understanding the sector developments (potentially useful to supervisors?)

18. Thank you. Questions? Thank you

19. Appendix 1: Comparison of assets by FVC activity Note: Prelimary data

20. Appendix 2a: Items collected under ECB/2008/30

21. Appendix 2b: Breakdowns collected under ECB/2008/30