Royal Bank of Scotland is launching a £4.7bn issue of securities backed by its mortgages in its first securitisation deal of this type since the financial crisis began.
RBS said it planned the mortgage-backed bond issue as part of a bid to "diversify its funding sources". The move may also suggest that there is finally some light at the end of the tunnel for homebuyers denied credit by lenders struggling to raise funding for advances.
The state-owned bank is also trying to raise capital to return to private ownership. The return of securitisation — the bundling of individual loans into new bonds backed by the loan repayments — is considered critical for the wider economic recovery because of the role it plays in taking loans off banks’ balance sheets, freeing them up to make fresh loans.
RBS has lending targets which it may struggle to meet without the relaunch of its asset backed securities business. The securitisation market was brought to a halt by its association with the sub prime mortgage market in the US, the toxicity of which contributed to the global banking crisis. RBS’s dependence on these types of asset backed loans meant that the bank was one of the worst affected during the crisis, and it was taken into state ownership. The success of the RBS product will provide a measure for the health of the rest of the sector.
Before the crisis, the UK residential mortgage-backed securities market accounted for about half of all such European issuance. Anne Hoe of Linklaters, acting for the arranging banks said: "Working on this has been particularly interesting because it is the first such securitisation by RBS coming to the market since the financial crisis, and shows that the market is opening up again. Hopefully this means that other issuers will be able to follow suit."
A spokesman for RBS said the bonds being issued were backed by high-quality RBS and NatWest mortgages. "There have not been the investors out there who have been interested in securitisation, but now they are again," the spokesman said.