development of russian securitization regulation presentation for : frankfurt june 21-22, 2007 rumac...
TRANSCRIPT
Development of Russian Securitization Regulation
Presentation for :
Frankfurt June 21-22, 2007
RuMAC
International Conference
Asset Securitization in Russia and CIS
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Lets start with basics
Law & Economics “…Economics…is a real basis, on top of which
lays legislative and political superstructure…”
(K. Marx, 1859, A Contribution to the Critique of Political Economy) …Russian regulators should have known that.
Contents:– What is to be regulated?– Levels of regulation: from general to specific– Advantages of Russian law with regard to securitization– Demand for competitive regulation
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Scope of regulation
Securitization is the sale of equity or debt instruments, representing ownership interest in, or secured by, a segregated, income producing asset or pool of assets, in a transaction structured to reduce or reallocate certain risk inherent in owning or lending against the underlying assets and to ensure that such interests are more readily marketable and, thus, more liquid than ownership interests in and loans against the underlying assets.
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Sample Securitization Structure
Bank
Seller/Servicer/Asset Manager
Assigns portfolio of loans to the Issuer of rated securities, monitors portfolio performance, and performs credit evaluation, loan servicing, and collections
TrusteeProtects investor’s security interests in the collateral, maintain cash reserve accounts, and perform other duties
Issuer (Trust)SPV
Purchases loans and issues ABS, using loan as collateral
Investor
Swap CounterpartyProvides swap to hedge against currency and/or interest-related risk
Assignment Agreements
Bank loan
portfolio
proceeds
ABS
proceeds
Interest and
principal
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Types of Securitizable Assets
Essentially any assets or pools of similar assets producing more or less predictable stream of cash flows
Example:
- Any type of consumer loans (car loans, credit card loans, mortgages, student loans)
- Lease Payments
- Commercial loans (SMI loans, commercial mortgages )
- Royalty Stream ( David Bowie Bond)
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Problems with Securitization
ABS is a STRUCTURED finance transaction. The core of ABS is a negotiable instrument (security)
So… Securitization is a market for BIG GUYS BIG GUYS are sensitive to regulations There IS a COMPETITION of JURISDICTIONS Regulators should fight for a piece of ABS market
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Law & Securitization
General Reg.Directly Related reg.
Specific reg.
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Specific regulation: bad , but getting better
total overregulation total deregulation
Specific regulation
RussiaMortgage
assets
EU US RussiaOther assets
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Specific regulation: What we have now
Federal law “On Security Market” (covered bonds)
Federal law “On Investment Funds” (quasi-ABS)
Federal law “On Mortgage-Backed Securities” (MBS)
Regulations of Federal Financial Market Service
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One example
2006 – Gazprombank and Sovfintrade closed the first ever Russian MBS.
We faced: 6 boxes of transaction documents, or otherwise More than 15 000 pages of transaction documents,
or otherwise Over 100 kilos of paper
WHO IS GOING TO READ ALL THIS?
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What we expect
Federal law “On Asset-Baked Securitization” With regard to specific ABS regulation it
leaves much to be desired
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Related regulation OK and improving
Federal law “On Mortgages” Federal Housing Code Federal law “On State Registration of Real
Estate Properties” Some amendments are currently being
drafted
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General regulation: good and becoming adopted with case practice
Federal Civil Code Federal Tax Code Federal law “On bankruptcy”
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Another example
2005 – Bank of Housing Finance closed the first ever Russian covered bond issue (on-balance sheet securitization of apartment presales).
Collaterization was fully based on Federal Civil Code provisions. No specific regulation applied.
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Some advantages of Russian general regulations
1. Russian FUND vs. Dutch STITCHING
Remedy against trustee is
based on Fund’s charter which is public. Any noteholder shall have a standing.
based on contract with trustee, which is private. Shall the noteholder have a standing?
2. True sale
Russia vs. US
Possibility of requalification is a very limited possibility.
No Doctrine of consolidation.
Sophisticated doctrine of consolidation stimulates the court to requalify the deals. Some negative case law.
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Russia desperately needs competitive specific regulation
Accumulation of amortizing assets on Russian banks’ balance sheet is a ticking bomb waiting to explode………………
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Financial engineering tools available through securitization can re-distribute the prepayment and credit risks through the financial system
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Why? Look around! Historical Federal Reserve Funds Rate
Month 1984 1983 1982 1981 1980 1979 1978 1977 1976 1975
January 9.56 8.68 13.22 19.08 13.82 10.07 6.7 4.61 4.87 7.13
February 9.59 8.51 14.78 15.93 14.13 10.06 6.78 6.85 4.77 6.24
March 9.91 8.77 14.68 14.7 17.19 10.09 6.79 4.69 4.84 5.54
April 10.29 8.8 14.94 15.72 17.61 10.01 6.89 4.73 4.82 5.49
May 10.32 8.63 14.45 18.52 10.98 10.24 7.36 5.35 5.29 5.22
June 11.06 8.98 14.15 19.1 9.47 10.29 7.6 5.39 5.48 5.55
July 11.23 9.37 12.59 19.04 9.03 10.47 7.81 5.42 5.31 6.1
August 11.64 9.56 10.12 17.82 9.61 10.94 8.04 5.9 5.29 6.14
September 11.3 9.45 10.31 15.87 10.87 11.43 8.45 6.14 5.25 6.24
October 9.99 9.48 9.71 15.08 12.81 13.77 8.96 6.47 5.02 5.82
November 9.43 9.34 9.2 13.31 15.85 13.18 9.76 6.51 4.95 5.22
December 8.38 9.47 8.95 12.37 18.9 13.78 10.03 6.56 4.65 5.2
Source: Federal Reserve RuMAC
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Historical 30 year Fixed-Rate Mortgage Rates
1982 1981 1980 1979 1978 1977 1976 1975
Rate Rate Rate Rate Rate Rate Rate Rate
January 17.48 14.9 12.88 10.39 9.01 8.72 9.02 9.43
February 17.6 15.13 13.04 10.41 9.14 8.67 8.81 9.1
March 17.16 15.4 15.28 10.43 9.2 8.69 8.76 8.89
April 16.89 15.58 16.32 10.5 9.35 8.75 8.73 8.82
May 16.68 16.4 14.26 10.69 9.57 8.83 8.76 8.91
June 16.7 16.7 12.71 11.04 9.71 8.86 8.85 8.89
July 16.82 16.83 12.19 11.09 9.74 8.94 8.93 8.89
August 16.27 17.28 12.56 11.09 9.78 8.94 9 8.94
September 15.43 18.16 13.2 11.3 9.76 8.9 8.98 9.12
October 14.61 18.45 13.79 11.64 9.86 8.92 8.92 9.22
November 13.82 17.82 14.21 12.83 10.11 8.92 8.81 9.15
December 13.62 16.95 14.79 12.9 10.35 8.96 8.79 9.1
Annual Average
16.04 16.63 13.74 11.2 9.64 8.85 8.87 9.05
Source: Freddie MacRuMAC
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The Result…
The ultimate cost of the crisis was estimated to total around USD$150 billion, about $125 billion of which was consequently and directly subsidized by the U.S. government, which contributed to the large budget deficits of the early 1990s.
Over 1000 S&L Institutions failed!
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In Russia
We are leaving in a magic universe of constantly declining interest rates and rising real estate prices…
If real estate market conditions change
when the interest rates shall start rising?
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Lets finish with basics:
Regulator does not have time to waste… Regulator must realize that there are another
jurisdictions If necessary Marx is still available in any
Russian public library
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This is who we are..
Prof. Vladimir Ponomarev, CEO – prior to joining RuMAC was deputy head of Russian Builders Association. Originally trained as a mathematitian and physicist he is the author of over 140 scientific publications and books as well as holder of several patents. Along his academic carrier Prof. Ponomarev spent years in the administrative positions, among others as a Deputy Minister of Construction ( Gosstroy). Prof. Ponomarev holds MA in Mathematical Physics from University of Warsaw, PhD in Mathematical Physics from Moscow State University and MA in Economics from Moscow State University
Alexander Kazakov, Chief Legal Counsel – prior to joining RuMAC was a senior lawyer at Moscow based law firm Linia Prava and prior to this a Chief Legal Councilor at AIJK. Alex is a member of the group of experts on Mortgage Law and Securitization Law at the Russian Parliament. He brings over 8 years of legal experience practicing Russian corporate and securitization law. One of his most recent achievements was the first on-balance sheet Rubble MBS issue for the Bank of Housing Finance in Moscow. Alex holds a Law Degree from Moscow Institute of International Relations as well as an LLM from University of Leiden, Holland
Dmitri Dorofeev, CFO – prior to joining RuMAC worked at Greenwich Financial Services, L.L.C. covering institutional clients as well as working on two pioneering transactions that GFS brought to market – the first rue sale pass-through securitization in Russia for Bank “Soyuz” and pass-through Mortgage Loan securitization for CityMortgage Bank. Dmitri brings over 12 years of experience trading and selling fixed income securities and equity derivatives for Dresdner Bank, Goldman Sachs and Salomon Smith Barney.Dmitri holds an MA in International Economics from Voznesensky Academy of Finance and Economics, St. Petersburg and MBA in Analytic Finance from the University of Chicago
Sergei Kaduk – Head of Research. Prior to joining RuMAC, Sergei was a Senior Associate with the KPMG Structured Finance Group in McLean, VA. Sergei has modelled and provided due diligence on numerous MBS, ABS, CDO and NIM transactions, with specialization in whole loan MBS. One of his last assignments at KPMG was advising on the CityMortgage securitization. Sergei holds an M.S. in Mathematics and Applied Mathematics and a B.A. in Economics from Moscow State University as well as an MBA from the University of Virginia Darden School of Business, with a concentration in Finance.
Russell Mueller – prior to joining RuMAC worked at Greenwich Financial Services, L.L.C. covering a wide range of major institutional clients in US and UK. Russell’s experience on the US Mortgage Market started with it inception in the late 80s. During his almost 10 years carrier as an MBS trader at Morgan Stanley in New York he traded a wide range of mortgage instruments and their derivatives. In his later years at the firm Russ was running the CMO desk.
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