Foreign Banks' Lack of Retail Business Here Restricts Expansion in Asset-Backed Paper

Article excerpt

After rapidly building up their asset securitization programs in the United States, big foreign banks are keen to expand them further in this country. But scant retail operations here limit their options.

Most foreign banks securitize only corporate receivables here, although they've been big buyers of asset-backed securities as well as major providers of credit guarantees to enhance asset securitization programs.

According to Federal Reserve Board figures, the amount of commercial paper backed by corporate receivables has increased dramatically, from $29 billion in 1991 to $55 billion as of November.

Of that amount, commercial paper issued by corporations owned by foreign banks or foreign banks in conjunction with U.S. banks amounted to $21.5 billion in 1994.

However, few foreign banks are able to securitize credit card assets or mortgages because they don't have the retail banking operations to generate consumer receivables.

Although these banks would dearly like to transplant some of the skills learned in U.S. asset securitization to their native countries, few, have been able to. Their home markets are smaller, for one thing, and numerous restrictions do not allow foreign banks to transfer assets, such as bank loans, to third parties.

The upshot is that big Canadian, Swiss, German, French, and Japanese banks are still concentrating mainly on expanding or launching new special purpose conduits for commercial paper, even as conditions for distributing such paper grow more difficult.

"It's a very competitive market," remarked Douglas Murray, a managing director for assetbacked securities at Fitch Investors Service LP in New York.

"There are a lot of programs out there, and I wouldn't be surprised if there was some consolidation."

Adds one industry executive who declined to be identified: "There's still quite a bid of demand out there but, unfortunately, supply is growing faster than demand. …