Jules Stewart reports on Banca Nazionale del Lavoro’s arrival on the securitisation scene and how it has become Italy’s frontrunner for RMBS.

Banca Nazionale del Lavoro (BNL) was something of a latecomer to the securitisation market. It only started planning its first transaction in 2002, however, it has since powered into a leading market position among Italian issuers.

The bank’s E2.2bn issue, launched in April 2003, turned out to be the largest ever prime residential mortgage-backed securitisation (RMBS) in the Italian market, with ABN AMRO as sole bookrunner and BNL as co-arranger and joint lead manager. The issue was structured in four 3.7 to 10.5 year tranches with ratings ranging from AAA/Aaa to BBB/Baa2. The issue followed on from BNL’s E1.24bn securitisation of lease receivables that had been launched the previous year.

“We are working on another residential mortgage transaction to be launched in 2004, this will be in the range of E1bn-E1.2bn,” says Paolo Tesoro, BNL’s group treasurer.

Multiple benefits

Mr Tesoro points to a number of benefits arising from the launch of the bank’s securitisation programme. Firstly, the issue reduced the reliance on raising funds in the interbank deposit market. Further, the securitisation obtained off-balance sheet treatment which helped bring a substantial improvement in BNL’s liquidity position and equity ratios.

“The deal allowed closer matching of medium and long-term funding with assets,” he says. “Opening the market to this type of funding gives us an opportunity to originate new business, while increasing our return on equity.” A longer term benefit is that the IT systems the bank put into place to launch and monitor this programme can also be used for covered bonds, as the Italian authorities are shortly expected to bring out new legislation giving the green light for this market.

Achieving goals

The securitisation of the bank’s prime mortgage portfolio is an important instrument in achieving the bank’s goals, defined in its 2003-2005 operating plan. Strengthening the capital base is one of the two key objectives, along with improving profitability. BNL has set itself the target of achieving a 6.7% Tier 1 ratio and return on equity (ROE) of 10% by 2005, as against 5.6% and 5.0% (annualised ROE) as at September 30, 2003.

“The RMBS was an innovative issue,” says Mr Tesoro. “It was launched in two phases, the first being a synthetic fully funded credit default swap guaranteed by cash collateral in our favour. This had the advantage of attracting a zero weighting for equity ratio purposes for the bank.”

Impact of the euro

Clearly, being able to issue in euros was a major benefit for the bank in terms of funding costs and broadening investor appeal for the issue.

“Without the euro we would have needed to swap the issue into international currencies, so in this sense it represented a substantial cost saving and a more efficient use of the bank’s capital. The single currency is also becoming more relevant for Asian investors, and this will be a useful incentive for eventually issuing covered bonds into that market.”

Mr Tesoro says investor reaction to the RMBS was more than satisfactory. “The issue performed well in the secondary market and attracted a broad spectrum of investors. The fact that we now have access to a capital efficient source of funding will undoubtedly be useful to us when discussing the bank’s debt rating with the agencies.” His views are echoed by Ezio Dosa, BNL’s head of asset, liability and capital management: “The issue met with a very enthusiastic response from a broad range of investors and successfully achieved all of our objectives.”

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