European banks are increasingly turning to bespoke deals with investors such as hedge funds to offload some of the risk on multi-billion euro loan portfolios and improve their financial strength, several sources involved told Reuters.
Banks supervised by the European Central Bank , the biggest ones in the euro zone, completed a record 174 billion euros of such deals last year, the regulator told Reuters.
Unlike a traditional securitisation, in which a bank's assets are moved to a separate entity that then sells securities to investors, SRTs are often "synthetic" and mimic a sale. "Investor interest has widened," said Jason Marlow, managing director in Barclays' corporate loan portfolio management team.
To minimize the risk the bank would face were the investor unable to make good on its part of the trade, cash collateral is posted to cover the potential losses whose risk has been transferred, which market sources say is key for the bank to obtain the capital relief from the regulator. The ECB, which has not published data for SRT trades in 2022, typically does not name the banks involved, the number of proposed transactions at any one time nor the likely volume.Germany's Oldenburgische Landesbank AG said last week it had entered into its first SRT and boosted its common equity Tier 1 ratio, a key measure of balance sheet strength, by 40 basis points. OLB, backed by Apollo Global Management, previously reported a CET1 ratio of 13.6% for 2022.
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