Almost all companies do have an effective portfolio management nowa-days. Nevertheless, it is not unusual for companies to have very high values in receivables. Especially for companies with a turnover of more than 100 million EUR, the receivables grow to a value of 10 million EUR or more. This capital is usually unavailable for the company and may become available using Asset Securitisation to refinance the receivables. Nowadays, Securization is exercised in many branches, but the focus of this paper should be on ABS-projects with banks. The influence of Basel II on the behaviour of credit institutions further reinforces the importance of Asset Securitisation as a tool for companies to improve capital costs and the balance sheet rations. This again has implications for the rating of enterprises. Due to the growing interest in Asset Securitisation, a lot of research has been done by the European financial institutions. ABS might be designed in many different variants. To consider all of them, a realistic volume of this work would be exceeded. Target of this paper is to give an overview about the function of ABS and the affiliated possibilities and chances to use them in practice.
In the first part of this paper, the question of definition and of the basic structure of Asset Backed Securities will be examined. Furthermore, the requirements for an Asset Securitisation in respect to the portfolio of as-sets will be explained.
The second part is concerned with a detailed outline of the two groups of ABS, namely True Sale and Synthetic Sale and the allied key role of the KfW. Thereby, the questions of adding value and benefits for the differ-ent participants within structured finance transactions are examined.
In the third part, general facts and figures as well as the advantages and disadvantages from the bank’s perspective are regarded.
Finally, our conclusion informes about the current situation of the Euro-pean market for securization and ABS and its propable development as a modern financing insrument, especially for banks, in the future.
Table of Contents
- Introduction
- Origination
- Change in behaviour of banks
- Definition of ABS
- Example of ABS
- Structure Variants of ABS
- Pass-Through Structure
- Pay-Through Structure
- Function of ABS
- Key Players
- True Sale
- Synthetic Sale and KfW
- Facts and Figures
- Advantages
- Disadvantages
- Current Situation
Objectives and Key Themes
This paper aims to provide an overview of Asset-Backed Securities (ABS), their function, and their practical applications, particularly within the banking sector. The impact of Basel II on bank behavior and the increasing importance of securitization as a tool for improving capital costs and balance sheet ratios are also examined.
- Definition and structure of ABS
- True Sale versus Synthetic Sale ABS structures
- The role of the KfW (Kreditanstalt für Wiederaufbau) in ABS transactions
- Advantages and disadvantages of ABS from a bank's perspective
- The current situation and future development of the European ABS market
Chapter Summaries
Introduction: This introductory chapter establishes the context of the paper by highlighting the prevalence of high receivables values in corporations, especially those with turnovers exceeding €100 million. It introduces asset securitization as a method to refinance these receivables and make the tied-up capital available. The chapter emphasizes the increasing importance of asset securitization, particularly in the banking sector, influenced by Basel II regulations. It sets the stage for the subsequent chapters by outlining the paper's objectives: defining ABS, explaining their structure, detailing the two main types (True Sale and Synthetic Sale), and analyzing the advantages and disadvantages from a bank's perspective. The chapter concludes by stating the paper will focus on ABS projects involving banks and provide an overview of their function and practical applications, acknowledging the complexity of the subject and the limitations of fully encompassing all variations within the scope of this work.
Origination: This chapter traces the origins of modern receivables securitization back to the 1970s in the USA, highlighting the inefficiencies of the American financial system at the time, including the "regional banking principle" that restricted mortgage lending. This restriction impeded capital flow between counties, leading to increased demand in Western states. The chapter explains that prior to the 1970s, banks lacked long-term refinancing instruments for mortgage loans and relied on short-term investments, making them vulnerable to interest rate volatility. The creation of the Government National Mortgage Association (GNMA) and its role in facilitating the first securitization transaction are discussed, marking the beginning of the securitization of non-mortgage assets and its rapid spread throughout the USA. The chapter concludes by noting that while the US ABS market remains the largest, its share of worldwide emissions is declining.
Change in behaviour of banks: This chapter focuses on the shift in bank behavior from the traditional "buy-and-hold" model of loan management to the "buy-and-sell" model enabled by the growth of the ABS market. It explains that by pooling and selling receivables through ABS transactions, banks can remove these assets from their balance sheets, improving their balance sheet structure, credit rating, and liquidity. This enhanced liquidity allows banks to issue new loans or pursue other opportunities, thus changing their core business practices and risk profiles significantly. The chapter underscores the impact of this shift on banking strategies and overall financial stability.
Definition of ABS: This chapter provides a detailed explanation of the structure of Asset-Backed Securities. It describes how a company (the originator) pools homogeneous assets that generate income and sells them to an investor. The investor finances the purchase by issuing notes. The income generated by the asset pool is then used to repay the investor’s notes, creating a tradable instrument independent from the original owner. The chapter introduces the Special Purpose Vehicle (SPV), an unaffiliated company that owns the assets and manages the process. The importance of the SPV in creating legal separation and reducing risk is highlighted, clarifying how the asset pool serves as collateral for the notes issued. The chapter concludes by emphasizing the simplified understanding of ABS as "assets backed by securities" and the role of a service agent in handling administration, booking, collection, and dunning.
Function of ABS: This chapter delves into the function of ABS, exploring the key players involved and distinguishing between two main types: True Sale and Synthetic Sale. It analyzes how ABS transactions add value and benefit the various participants in structured finance, examining the intricacies of risk allocation and financial engineering involved in these transactions. The significance of each participant's role in the process is thoroughly explained, providing a clear understanding of how value is created and distributed among the various stakeholders.
Keywords
Asset-Backed Securities (ABS), Securitization, Basel II, True Sale, Synthetic Sale, KfW, Portfolio Management, Receivables, Balance Sheet Ratios, Structured Finance, European Financial Markets, Capital Costs.
Frequently Asked Questions: A Comprehensive Overview of Asset-Backed Securities (ABS)
What is this document about?
This document provides a comprehensive overview of Asset-Backed Securities (ABS), including their origin, structure, function, advantages, disadvantages, and current market situation. It focuses on the role of ABS within the banking sector, particularly in light of Basel II regulations, and examines both "True Sale" and "Synthetic Sale" structures. The document also includes a table of contents, chapter summaries, objectives, and key themes.
What are Asset-Backed Securities (ABS)?
ABS are securities backed by a pool of assets, typically receivables, which generate income. A company (the originator) pools these assets and sells them to an investor who finances the purchase by issuing notes. The income from the asset pool is used to repay the investor's notes. A Special Purpose Vehicle (SPV) is often used to own the assets and manage the process, providing legal separation and risk mitigation. In essence, it's a way to turn assets into tradable securities.
What are the different types of ABS structures?
The document primarily discusses two main structures: "True Sale" and "Synthetic Sale". While the details of each are not fully explained within this summary, the distinction is a key theme of the document.
What is the role of the KfW (Kreditanstalt für Wiederaufbau)?
The document mentions the KfW's role in ABS transactions, suggesting its involvement is significant enough to be a key theme. However, the specific nature of this involvement is not detailed in this summary.
How do ABS benefit banks?
ABS allow banks to remove assets from their balance sheets, improving their balance sheet structure, credit rating, and liquidity. This allows them to issue new loans or pursue other opportunities, changing their core business practices and risk profiles. The impact of Basel II regulations on this behavior is also discussed.
What are the disadvantages of ABS?
While the advantages are highlighted, the document also addresses the disadvantages of ABS from a bank's perspective, although specific details are not included in this summary.
What is the historical context of ABS?
The document traces the origins of modern receivables securitization back to the 1970s in the USA, highlighting inefficiencies in the American financial system at the time and the role of the Government National Mortgage Association (GNMA).
What is the current situation and future development of the European ABS market?
The document addresses the current situation and future development of the European ABS market but doesn't provide specific details in this summary.
What are the key players involved in ABS transactions?
The document discusses the key players involved in ABS transactions, including originators, investors, and the Special Purpose Vehicle (SPV), emphasizing the significance of each player's role in the value creation and distribution process.
Where can I find more detailed information?
The provided document contains detailed chapter summaries that offer a more in-depth understanding of each topic.
- Citar trabajo
- Gina Slabke (Autor), Carsten Albrecht (Autor), 2007, Asset Backed Securities – A solution for financial management in International Corporates?, Múnich, GRIN Verlag, https://www.grin.com/document/84122
