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Robert Plehn, HBOS: satisfying his capital needs with cheaper sources |
HBOS has incorporated a 2008 call option into the pre-placed mezzanine tranches of its latest Permanent RMBS transaction, which could be an indication of the largest UK mortgage originator’s issuance plans post-Basle II: a possible cessation of sub-triple-A RMBS issuance. "The cost of getting capital relief from the issuance of sub-triple-A paper for a prime residential mortgage portfolio is relatively expensive for us," says Robert Plehn, head of securitization and covered bonds at HBOS Treasury Services in London. "Given our alternate source of capital and the expected lower risk weightings associated with our prime UK residential mortgage book we may be able to satisfy our capital needs through other, cheaper sources." HBOS issues between £8 billion and £10 billion ($19.6 billion) of RMBS paper through its Permanent master trust each year. Some 93% of this is triple-A rated, but given the size of the programme if the issuer decides to stop all sub-triple A issuance it will remove around £700 million of paper from the mezz market each year. The beginning of the end
Scrapping sub-triple-A RMBS issuance is an option for a bank such as HBOS as it has a very high quality mortgage book and can therefore rely on triple-A RMBS and covered bond issuance to fund its book.