Hypoport Significant Risk Transfer deals in PRoMMiSe
According to PCS (link) we see more Significant Risk Transfer deals in Europe because:
1. 80% of debt funding to the economy is through banks (in the US 80% is through public markets)
2. in Europe we closely follow the Basel guidelines restricting the banks’ capital
In the past few years we have been assisting clients with Corporate and SME SRT (Significant Risk Transfer) deals.
On the one hand and contrary to true sale transactions, in most SRT deals we see no cash flow reconciliation is required as they are synthetic. On the other hand, there are some tricky features to get right in the monthly reporting process of a corporate or SME SRT deal.
- data quality and sourcing
a. we observe first mover disadvantages to source systems in different places in the bank
b. the data quality in the newly setup data flows can be a challenge as there products have more exotic features and are less standardised - portfolio management and optimisation
a. dealing with increasing loans
b. dealing with loans that need replacing by similar loans
c. optimising the pool for instance to max out RWA relief
d. dealing with other transactions that are using the same pool of assets for replenishment - integrating with other systems
a. COREP: RW on the tranches under SEC SA or IRB
b. Central Banks: For communicating pledged assets in Credit Claims deals - Reporting
a. ESMA: do we need to say more?
All in all, these different aspects can be quite a hurdle for innovating bankers to get capital relief. For project managers it is not always easy to navigate from department to department due to the dense regulatory and IT components of the project. Because of the consequences of the transaction in the form of cash flows and capital, internal audit most likely will be involved as well.
Our clients have taken our company and our product on a journey as they saw the value in our teams and technologies when they entered into other asset classes than mortgages and other transaction types than true sale ABS.
Our product PRoMMiSe is 25 years in use this year. It started out as tool for mortgage transaction valuation, and evolved into the broader suite of asset backed / structured finance reporting technology of today. Due to our experience we can help get a transaction out to the market, or improve your existing reporting flow if needed.
The ultimate pay off is to help our clients to correctly and quickly inform investors, rating agencies, and regulators. This allows banks to achieve crucial capital relief to keep funding SME’s and Corporates and keep the economy moving forward.