May 18, 2018 / 11:27 AM / 5 days ago

Barclays to sell on £4 billion Irish loan book as mortgage securitisation returns

LONDON (Reuters) - Barclays will package up and sell on the 4 billion pounds worth of Irish home loans that it bought from UK rival Lloyds (LLOY.L) on Friday, in a sign of the resurgent appetite for securitised mortgages that played a big role in the 2007-8 financial crisis.

FILE PHOTO: A Barclays logo is pictured outside the Barclays towers in Johannesburg, South Africa, December 16, 2015. REUTERS/Siphiwe Sibeko//File Photo

The deal marks the second large-scale mortgage securitisation this year for the British lender, after a group led by Barclays in April bought 5.3 billion pounds worth of residential mortgages from the British ‘bad bank’ set up to manage the assets of two failed lenders.

It shows the continuing trend of European banks selling assets to investors such as hedge funds and private equity firms, as they attempt to shrink their balance sheets to focus their businesses and comply with tougher capital regulations.

Barclays has already lined up a group of investors to buy the former Lloyds loans, according to Cecile Hillary, head of Barclays’ asset finance business which it opened last year.

“This kind of deal shows the continued deleveraging of financial institutions in Europe that has taken place since 2011, and the investor appetite for good quality residential mortgages,” Hillary said.

Barclays will complete the purchase and securitisation of the loans in the next two months before selling them on to a group of investors including M&G Investments, the investment manager arm of British insurer Prudential Plc (PRU.L).

The portfolio consists of around 27,000 mortgages that were originated between 2004-2010, mostly in Dublin, Barclays said.

    THIS TIME IT’S DIFFERENT

    While the deal resembles the repackaging of home loans for resale to investors that was one of the underlying causes of the last financial crisis, changes in regulations as to how such deals are created and sold mean the risks to the system should be lower.

    Barclays, for example, will retain at least 5 percent of the overall Lloyds mortgages as part of risk retention rules designed to align the originator of such deals’ interests more closely with those of their investors.

    Analysts on Friday immediately questioned the logic of Barclays buying such a large portfolio of home loans, given the potential impact on its already stretched core capital level.

    “It seems extraordinary that Barclays is buying these loans - even if they only plan to warehouse them in the investment bank before selling them on,” said Edward Firth, analyst at KBW in London.

    A Barclays spokesman said there will be no long-term negative capital impact.

    Reporting By Lawrence White; Editing by Elaine Hardcastle

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