Rabobank bonds deal shows liquidity fears
By Paul J Davies in London
Financial Times
Published: January 30 2008 18:33 | Last updated: January 30 2008 18:33
Rabobank, one of the world's safest banks, has such concerns about the ongoing liquidity crisis that it turned €30bn ($44bn) of its mortgage book into one of the largest asset-backed bonds ever structured to guard against a sudden funding need.
The Dutch bank formed the huge residential mortgage-backed securities (RMBS) at the end of December specifically to retain on its balance sheet in case it needed to approach the European Central Bank for funding.
Several European banks, particularly in Holland and Spain, have formed and retained RMBS deals solely to swap for funding with the ECB since the markets for structured credit seized up during the liquidity crisis last summer.
Marco Roddenhof, treasurer at Rabobank, the only European bank rated AAA by Standard & Poor's and one of very few by Moody's, insisted that the bank had not had to use the deal for funding purposes.
"We [acted] to guard against the rising liquidity risk we see in 2008," Mr Roddenhof said.
"We expected the crisis in the financial system to only get worse this year and this deal acts as an additional liquidity buffer that we can use as collateral to raise funds from, for example, the central bank if necessary."
It would be possible theoretically for a bank to raise such sums from its regular liquidity operations, but the ECB would not comment about whether any bank had done so.
Many banks and especially mortgage lenders have come to rely increasingly on capital markets rather than depositors to fund their businesses. But since the credit crisis began last summer, hardly any securitisations have been sold in the open markets.
Those in need of funding have instead formed mortgage-backed bonds to use as collateral in repo (or repurchase) operations to raise funding from the ECB.
Spanish banks for instance raised more than €50bn this way during the second half of 2007, according to Moody's.
Some analysts and banking experts think that if the Bank of England had accepted these kinds of bonds as collateral from before the crisis, Northern Rock, the stricken UK lender, might have had a better chance of weathering the financial storm.
Rabobank said in a trading update this month that the impact on its results would be limited but would affect its wholesale business.
The bank has had pressure put on its balance sheet by the need to unwind its structured investment vehicle (SIV), which had peaked at about $14bn last year.
Mr Roddenhof said that the process was largely complete and most investors in the hard junior notes that support such vehicles had been bought out at market rates, which would mean losses.
Rabobank held about 10 per cent of the junior debt in its SIV.
foto:.rabobank.com
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am December 28 2008 @ 6:56 pm
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