Forged gold?

Italian bank Finconsumo Banco has launched Europe’s first fully synthetic asset-backed securitisation, backed by a portfolio of the bank’s consumer loans. Maurizio Valfrè, head of treasury at Finconsumo, says: “It means we are selling the risk but not the portfolio.”

The deal, Golden Bar, allows the bank to reduce the amount of regulatory capital it must hold against the portfolio of consumer loans in case of defaults. However, unlike an ordinary securitisation, the bank does not raise funding. “We wanted to reduce our regulatory capital needs but we did not need funding, so a synthetic transaction is the perfect instrument,” says Valfrè.

The transaction – arranged by Finconsumo and French bank Crédit Agricole Indosuez (CAI) – sees the Italian bank buying default protection on 99% of a €350 million portfolio of consumer loans. Didier Harnois, who worked on the deal for CAI in Milan, says: “From a management point of view, the synthetic is simpler because there is no daily transfer of money and no special-purpose vehicle.”

“The deal took just three months. That’s shorter than a normal securitisation, which takes six to eight months to structure,” says Valfrè. “And we saved 35bp compared with the cost of a funded transaction. The comparison you have to make is between the all-in cost for a unit of regulatory relief, and that was 4bp with the synthetic deal compared with 6bp for a funded.”

Semi-funded asset-backed securitisations – where a bank sells a portion of asset-backed bonds to investors and buys protection through credit default swaps for the rest of the portfolio – have been done in Europe before. And fully synthetic collateralised debt obligations – where banks buy protection on their corporate loan portfolio – are also common. However, this is the first time a synthetic structure has been applied to consumer loans.

Valfrè says the bank plans a funded and a synthetic securitisation every other year, so next year Finconsumo will return with a funded asset-backed securitisation and another synthetic deal in 2004.

To read more about Italy’s securitisation market, see the September 2002 issue of Credit.