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Hans Krohn--By Hans Krohn, head of trade products, Commerzbank
Ever since the world's first rated issuance in 2006, "trade finance securitization" has been a buzzword in the banking industry. Yet--besides trading of such assets in the inter-bank market-- it has largely been a case of all talk and no action. However, recent deals in the market--including Commerzbank's CoTrax Finance II-1 issuance-- highlight that, if well structured, trade finance securitizations can be a solution to both banks' capital issues and institutional investors' desire for alternative assets.
The trade finance securitization market has been a long while in the making. While there was a small flurry of issuances pre-crisis, most banks thereafter mothballed plans to package their trade finance portfolios for the capital markets.
The main barrier to the market's success has so far been a lack of demand. This can partly be attributed to the fact that trade finance assets are generated almost exclusively by banks, which has historically made it difficult for non-bank institutional investors, such as hedge funds or pension funds, to get a foothold. Yet the main problem has been their appetite to do so. Traditional investors have become more conservative since 2008, and trade finance's lack of standardization, as well as its scarce investment track-record, has failed to whet their appetite. Additionally, alternative investors have largely been unimpressed by yields traditionally associated with the asset class. At the same time, impetus from the sell-side has not been forthcoming, with banks content to simply trade such assets in the inter-bank market.
Yet change is afoot. Basel regulation is a key driver, forcing banks to find ways to improve their capital positions, while investors are also increasingly seeking alternative investments in the current low-rate environment. In 2011, Standard Chartered closed its first synthetic trade finance collateralized loan obligation post-crisis. And this year has seen a number of further deals; notably BNP Paribas' securitization of commodity trade finance loan receivables in August and Citi and Santander's joint securitization of mainly corporate trade finance loans in November. In September Commerzbank closed its own deal--CoTrax Finance II-1--successfully placing a $22 million mezzanine tranche of a $500 million...