European Securitization Takes Off

Article excerpt

Attention-grabbing mortgage securitization deals in the British market signal the start of something big in Europe's real estate finance markets. While the U.K. is poised to be a leader in mortgage-backed deal making, many trends point to this being a much broader trend in the European financial landscape.

SECURITIZATION, LONG A FEATURE OF THE U.S. mortgage market, is beginning to establish itself in Europe.

This year has seen several major property securitization deals in Britain, which is at the forefront of the European market. London-based Abbey National Bank securitized ki billion (about $1.6 billion) worth of residential mortgage debt. And a commercial securitization worth $1.54 billion (about sz.46 billion) was assembled around British Land Company's Broadgate office complex in London's financial district.

The Broadgate deal, managed by Morgan Stanley Dean Witter, was more than twice the size of the 1997 securitization of the Canary Wharf development in London. That deal, worth more than L500 million, (about $800 million) had set the European record.

And, in a partnership that underlines its confidence about the outlook for securitization in both the U.K. and Europe, London-based Woolwich, the British bank, has formed a joint mortgage venture with the United States' Calabasas, California-based Countrywide Credit Industries. Woolwich gets access to Countrywide's information technology skills and expertise in securitization.

Countrywide Home Loans, Inc., the largest independent residential mortgage lender and servicer in the United States, will get access to Woolwich's customer base in the U.K., France and Italy. The joint venture will be run on a 550 basis. John Stewart, Woolwich chief executive, describes Countrywide as "a recognized U.S. leader in mortgage origination, related technology and the delivery of customer service." Angelo Mozilo, Countrywide's chairman and chief executive officer, returned the compliment, declaring that the British bank shares "our commitment to provide outstanding service and value to their mortgage customers and a belief in the opportunities presented by the globalization of the mortgage industry."

In an earlier expression of trans-Atlantic interest, Minneapolis-based GMAC-RFC (Residential Funding Corporation) announced in November 1998 that it had bought Woking, England-based Private Label Ltd., the British mortgage company. The acquisition, says Chris Nordeen, managing director of GMAC-RFC, "helps us to move forward" with plans to develop a presence in the European market. Central to GMAC-RFC's strategy is its well-developed securitization skills. In March 1998, GMAC-RFC had acquired Birmingham Midshires Mortgage Services, of Birmingham, England.

"I think we're about to see the long-spoken-of takeoff of the securitization market in Europe," says Peter Jeffrey, partner in charge of the mortgage lending practice at international accountants and consultancy PricewaterhouseCoopers in London.

Several factors are combining to encourage the growth of securitization in Europe. The adoption of a single currency at the beginning of 1999 by 11 of the 15 members of the European Union-and the resultant centralized control of interest rates-creates a permanent tilt toward lower rates. European financial institutions are becoming more competitive, often as a result of mergers and privatizations. And European governments are enacting legislation to make securitization easier.

Dominic Swan, senior vice president at Moody's Investors Service in London, says that European securitization effectively started in the U.K. in the mid-i98os. He cites two reasons for its subsequent spread to other European jurisdictions: For large financial institutions, securitization is a means of risk transference and capital relief; for smaller institutions, it offers a way to fund growth in the mortgage market. Swan says that a number of the larger European banks have done one or two deals with an eye on developing the technique as an alternative funding tool. …