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Increasing sophistication amongst market players Back  
With the entry of Bank of Ireland, one of Ireland’s largest mortgage banks, into the Irish covered bond market, the stage looks set for other parties to look to asset covered securities (ACS) to address their funding needs.
When the concept of introducing an Irish covered bond market was originally floated back in 1999/2000, it was expected that mortgage institutions would play a pivotal role in the market, but due to the complexities of issuing mortgage-backed bonds, the public sector market was established first. So far, two main players DEPFA Bank and WestLB Covered Bond have been behind the growth in this market, and issuance now stands at over €20 billion, making the Irish market the sixth largest in Europe, accounting for 12 per cent of the market so far this year.

Obvious contenders to issue ACS include the Royal Bank of Scotland’s Irish subsidiaries First Active and Ulster Bank, who would both have significant mortgage books. First Active used to be a frequent issuer of mortgage-backed securities (as did Bank of Ireland under its Liberator programme), but there is a good possibility that under new ownership the financial institution may look to ACS for its funding. Issuing ACS as opposed to asset-backed securities (ABS) means that the deal remains on the issuing institution’s balance sheet, and the notes are issued by the institution rather than a special purpose vehicle (SPV). Moreover, ACS is a cheaper funding method than ABS.

ACS v ABS will be a feature of the forthcoming Third Annual Finance Dublin International Securitisation Conference, which will take place on November 30th. As at previous conferences the agenda will focus on a wide range of topics associated with the global ABS market including investor issues, issuance and SPVs.

As this year looks likely to produce the first Irish corporate securitisation, in the form of a trade receivables securitisation from Jefferson Smurfit, this topic will also be high on the agenda.
The increasing sophistication of Irish corporate treasurers, as illustrated by Smurfit’s preference for the securitisation market as opposed to traditional forms of funding, is also highlighted in the story on the huge growth in derivatives on page 1 of this issue. John Moclair, of Bank of Ireland, apportions some of this growth to the increase in the skills and knowledge base of corporates. Over the past number of years there has been a steady increase in the number of courses available to treasurers, including DCU’s MSC in Investment and Treasury, and the Institute of Bankers Certificate in International Cash Management, and these can be credited with the growing demand amongst treasurers for more esoteric products to hedge risk.

In addition, the euro and the European single market has played a key role in the ‘up-skilling’ of corporate treasurers, as they can now access products conceived on the wider European market.
In October, FINANCE will print its annual ‘Guide to Corporate Treasury’, which will, through interviews and profiles of corporate treasurers, present further evidence of this ‘increasing sophistication’.

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