JPMorgan Plans Revival of Moribund Spanish Mortgage Bond Market
July 11 (Bloomberg) -- JPMorgan Chase & Co. is aiming to sell Spanish residential mortgage-backed securities this year, kick-starting a market shut since 2007.
JPMorgan wants to repeat its feat of reviving the U.K. mortgage bond market in 2009 when it shepherded a 4 billion- pound ($6.4 billion) sale for Lloyds Banking Group Plc, and restarting Italian issuance with a deal for Banca Monte dei Paschi di Siena SpA in November. Oldrich Masek, JPMorgan's head of securitized products origination for EMEA, said reopening Spain's market will be "our primary focus this year."
Spanish home loan-backed bonds may be a tough sell for a country with Europe's highest jobless rate, three years of falling home prices and a five-fold increase in mortgage arrears since 2007. Confidence in the nation was dealt a blow last week when Moody's Investors Service downgraded its neighbor Portugal to junk.
A deal "is a real challenge in the current market," said Luis Merino, a Madrid-based fund manager at La Caixa who helps oversee 15 billion euros ($21 billion) including asset-backed debt. A reopening of Spain's mortgage bond market "would be one of the most important milestones in the recovery of the Spanish financial sector and the country's economy," he said.
Spain's banks have been the third-largest issuers of the notes in Europe after the U.K. and the Netherlands, with 189 billion euros ($270 billion) outstanding, according to the Association for Financial Markets in Europe. No Spanish mortgage-backed securities have been sold publicly since a deal by Banco Bilbao Vizcaya Argentaria SA in July 2007.
Housing Boom
"Spain has historically been a big securitization market and Spanish banks need to raise funds," JPMorgan's Masek said in an interview. "Secured funding is the most efficient way to raise a large financing in a market with the problems of peripheral Europe."
Mortgage-backed securities helped finance a decade-long housing boom in Spain before losses from subprime mortgage bonds in the U.S. caused investors to shun hard-to-value assets. Banks pool home loans and sell them to investors as bonds, allowing lenders to raise capital more cheaply than by issuing unsecured debt.
JPMorgan arranged 17 asset-backed transactions totalling 19.3 billion euros in the first five months of the year, more than any other bank, according to data compiled by Structured Credit Investor, a financial information provider in London.
Lloyds, BMPS
"The first deals in the Spanish ABS market are likely to be offered as short-dated fast-pay senior tranches" to make them more attractive to investors, London-based Masek said.
JPMorgan's transaction for Lloyds opened the U.K. market after it had been virtually shut since 2008, according to Bloomberg data. As well as finding investors for the bonds, the U.S. bank bought a 1.25 billion-pound portion of the deal and provided a loan to Lloyds using the securities as collateral, Bloomberg data show.
In Italy, JPMorgan helped reopen the residential mortgage bond market with a 995 million-euro transaction for Banca Monte dei Paschi di Siena in November, the first public sale of the debt since June 2007, JPMorgan data show.
"JPMorgan is possibly the best-placed player to reopen the Spanish RMBS market, since not only are they able to arrange the deal, but also to put in a lead order and provide financing," said Stefano Loreti, a senior portfolio manager at Cairn Capital in London, who helps oversee more than $20 billion of asset- backed securities. "We haven't heard of any new issue Spanish RMBS being marketed for a long time."
Higher Fees
A bank arranging Spain's first mortgage securitization would get a significant increase in fees compared with pre- crisis levels, according to Santiago Ruiz-Morales, who was Credit Agricole SA's head of asset-backed securities for Spain and Portugal until 2007.
"In the pre-crisis years, banks were organizing Spanish RMBS transactions for fees ranging between 10 and 20 basis points," said Ruiz-Morales, now a partner at asset manager Aguila Capital SL in Madrid. "Now, a new transaction would face a huge increase in fees to reflect the higher marketing efforts needed to get the deal done."
To contact the reporters on this story: Esteban Duarte in Madrid at eduarterubia@bloomberg.net
To contact the editor responsible for this story: Paul Armstrong at Parmstrong10@bloomberg.net
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