Methodologies of Structured Finance with Konrad Reuss


Absa capital providing financing risk management and advisory solutions absa capital born to redefine structured finance was really at the heart of the financial crisis and ratings agencies were to a large extent blamed for you know the poor assumptions on risks specifically what sort of changes are we seeing on this front oh yes hi there good morning i mean the

Good thing is just sort of step back a bit and look at the conference here that this year as far as the rating agencies are concerned it’s a less it’s a lot less emotional so we’re getting a lot less criticism this year but i guess for many in the markets and this was a topic yesterday on one of the panels the question still is where are the rating agencies in

That cycle of changing its methodology of changing criteria which often does have an impact on rated transactions in the market and obviously investors are still worried about ongoing criteria methodology changes but the message we were able to give really yesterday was we are coming towards the end of that cycle are you under pressure from regulators for these

Changes conrad’s and and really how do you how do you change your view of how you rate a structured finance product as far as the regulators are concerned one could say well they will now there will never be an end to changes because for instance if you take what the the european regulator is expecting from us and we’ve now we’ve been regulated in the european union

Since september this year regulation will also come in south africa at some point although we don’t know at this point how it will exactly look like but the regulator in europe is basically asking the rating agencies to review their methodology their criteria on an annual basis which doesn’t mean you have to change it but you you’re being asked to review it on an

See also  Candid conversation with Ramya G, Senior Associate with Indian School Finance Company Private Ltd.

Annual basis of course banks themselves have also come under criticism for some of those structured products that they did come up with and a lot of them really quite opaque are we seeing a change to this way structured finance products are put together themselves as well i guess one sort of conclusion one can definitely draw from the subprime crisis and and how

Securitisation transactions the volume in the market and south africa is not specific in that respect in any way i mean this is a global phenomenon when you look at volume in the securitization market it completely fell off a cliff i mean we today we are talking about a sort of a fraction in terms of volume what used to be done in this market in 2007 before the

Crisis and so going forward the the main sort of theme will be simplicity will be transparency and basically complexity which was to the name of the game before the crisis complexity is definitely out of this market well you say less criticism leveled at this conference that you are attending over in cape town you’re also saying it’s less emotional at this stage

Are we seeing a growing appetite for securitisation given the kind of changes that are being implemented certainly during the conference and also when you look at what has happened in in the markets in in the south african markets in particular so far this year we have some transactions we’ve seen some transactions coming back actually so there is a bit of life

See also  Financial Engineering and Risk Management with Martin Haugh and Garud Iyengar, w

In the market again but we are still far away from like the other market peaked out in in 2007 then in 2007 the market kind of peaked out in terms of annual volume of transactions over 80 billion rand this year we have seen transactions sort of in the middle of like sort of 40 45 billion rand so we’re still far away from that when you look at global markets look

At europe look at the u.s. i think the key issue with regards to a revival in the market still is that investors have to come back or as they often call it the real money investors have to come back because when you look at the structural changes in the secure ization market in particular again in europe is that the the typical investors for structured finance

Transactions you had leading up to the crisis where the hedge fund this saves the special investment vehicles and they are all gone so really what has to come back now is a new generation a new class of investors it’s the real money investor and they perhaps they are still not completely comfortable with structured finance transaction and this deal might also be

True for pension fund trustees in the south african market oh really these are really the ones that make the call with regards to asset managers coming back into this market well all sorts of assets are being securitized conrad’s and also the real money investors looking for because during the subprime crisis of course all those mortgages subprime mortgages they

See also  Ira Epsteins Financial Markets Video 10 13 2022

Were being packaged up and sold is that going to be the case again are we looking at different sorts of assets being securitized we do not necessarily look towards or to sort of different sorts of assets it’s really what what the investor want to see is like i said before is simplicity transparency and that transaction can be sort of so looked through and and and

The like the rating can be sort of replicated and all this but in terms of assets what we have seen so far this year here in south africa and elsewhere are typical asset-backed loans based on on auto loans for instance retail mortgages are back to and retail mortgages rmbs transactions i see i called it doesn’t necessarily mean these have to be subprime as it was

The case in the us where ratings where the market really did not perform i mean south africa has a long history of rmbs retail mortgage-backed securities transactions and they actually during the crisis they performed as they should have done the same for europe so yes in terms of the assets we are looking at at retail mortgages may be slowly coming back commercial

Mortgage-backed securities and then auto loans credit cards that’s all going to happen but again what investors want to see is simplicity investors also want to have more data there’s a huge discussion going on these days about like how much loan data we have for the market has to provide to investors and also regulators are asking for this kind of disclosure

Basically as far as data is concerned

Transcribed from video
Methodologies of Structured Finance with Konrad Reuss By CNBCAfrica