Overview of securitisation activities in Ireland Clive Jackson OECD WPFS, Securitisation Workshop, May 2010

Overview of securitisation activities Quarterly data collected under FVC Regulation (ECB/2008/30) from Q 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

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 Current outstanding securitised mortgages c. 37bn –Securitisation is also possible through covered bonds. Enabled by 2001 legislation, first carried out in 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.

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.

FVC Regulation ECB/2008/30 Quarterly collection from resident FVCs from Q –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

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

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.

Activities of FVCs Note: Prelimary data

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)

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

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.

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)

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

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)

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

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

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?)

Thank you Thank you. Questions?

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

Appendix 2a: Items collected under ECB/2008/30 Assets Deposits & loan claims Securitised loans Other securitised assets (e.g. trade or tax receivables) Debt securities held (ISIN-by-ISIN data) Shares & other equity Financial derivatives Fixed assets Remaining assets Liabilities Loans & deposits received Debt securities issued Capital & reserves Financial derivatives Remaining liabilities Flows Financial transactions in assets and liabilities categories Write-downs & write-offs of securitised loans

Appendix 2b: Breakdowns collected under ECB/2008/30 Geographic Domestic, Other Monetary Union Member State and Rest of World for securitised loans from euro- area banks and debt securities held Unallocated for most other asset and liability categories No geographic data on holders of issued securities Sector MFI/Non-MFI on deposits & loan claims and debt securities held. Securitised loans from euro-area banks broken down by customer: government; OFI; insurance & pension fund; household; non- financial corporations. To net out multi-FVC securitisation transactions, of which FVC positions are requested for some items. Unallocated for most asset and liability categories Maturity Of securitised loans from banks to NFCs Of debt securities held Of debt securities issued