Having traversed the investment vogue from red hot to ice cold, residential mortgage-backed securities (RMBS) have been warming up again over the past year. But law firm Allen & Overy never lost faith in the securitisation market, and quietly strengthened its team even through the bad times. It recently advised Nationwide on the first UK building society securitisation to be sold into the US, another sign of the market's gradual thaw.
As mutuals, owned by their members, most building societies were resistant to pre-crunch securitisation mania, and have tiptoed into it very gingerly indeed. At least half their funding must come from members, which limits their scope for diversification. Perhaps more to the point, since securitisation involves a transfer of assets, societies have had to take great care to fully protect members' interests. It was only in late 2005 that Nationwide, the largest UK society by some margin and the pathfinder for the sector, issued its first covered bond, secured on cash flows from mortgages that nonetheless remained on its balance sheet. Allen & Overy acted for Nationwide. Others, such as Coventry Building Society and Yorkshire Building Society, have since followed this conservative route.
