Oh Dear Dear Me , What about AIB

The covered bond market is coming under intense scrutiny right now and that will land AIB right into it :frowning:

To date the ratings of a covered bond , a mechanism used by AIB to securitise its loans, has NOT been tied to the issuer.

An AAA Bond could have been issued by a B- or C bank . The ratings were decoupled.

Some rating agencies propose to couple them and to derive ( at least in part) the rating of the covered bond form the rating of thebank that issued them. This puts AIB into the headlight just like a fat rabbit caught at the end of a long summer days feeding.

ftalphaville.ft.com/blog/2010/02 … tastrophe/

I am not minded to read the copious reams of pure shite that corporate lawyers put into bond prospectuses but someone else might see what the implications are by clicking through all of this lot for starters.

ise.ie/app_document_test.asp … SORT=docId

I would look at this €15bn issue first and how AIB has to fund " Contractual Overcollateralisation " in the event of a derating or whether it can wiggle out by transferring the covered bond…to NAMA :frowning:

ise.ie/debt_documents/FBaseP … 08_551.pdf

page 82

Oh shit.

Mr. McWilliams may have gotten wind of this? Anyway, it would help bring his concerns to pass about the Irish banks being unable to securitise for ECB repo purposes.

To recap, the ECB rules say that a bond must have been AAA at issue to be eligible for issue. In terms of sales, many insurance and pension companies will only buy AAA rated instruments. This is a different AAA from a corporate bond or a sovereign bond, but it does indicate ‘best in class’. Market prices are determined by initial ratings.

Any old shoddy bank has ways of getting a pool of mortgages looking AAA when securitised -

  • insurance (CDS, IRS)
  • LTV
  • over-collateralisation
  • contractual measures

I think the 37 bn of securitised Irish debt is what the IMF had in mind when it talked about taking distressed mortgage assets… and any new securitisations the banks care to put out. We are, I fear, only a short hop and skip away from the jump into creating a GSE which would guarantee mortgage debt issuance.

Not forgetting EBS of course

online.ebs.ie/internet/pdffiles/ … 300109.pdf

Thread on EBS including their Emeralds…
viewtopic.php?f=19&t=21179

Yogan,

Covered bonds and securitisations are two different beasties.

A number of years ago I read through a summary of the Irish covered bond legislation and comparisons with other countries. In essense you create a mortgage bank with ‘safe’ assets (inter alia low ltv) and healthy levels of overcollateralisation. In normal circumstances, the issuer would be expected to cover losses. This should create (in theory) AAA quality. The mad thing about the Irish law allowed the max ltv to be based on market value (75% for residential and 60% for commercial). Even , eh, madder was that this criteria only applies when the assets are added to the pool.

Yes, Cave, I do remember reading your very clear explanations, I think they are in the EBS thread?

And I still use the two terms interchangably, when they are not interchangable. Sorry about that… in my defense, so does everyone else including the Central Bank!

Banks facing a new hurdle in bond market - Jon Ihle -> tribune.ie/business/news/art … nd-market/

From FT Alpha today ( the article is actually about Santander)

ftalphaville.ft.com/blog/2010/02 … leicester/

https://av.r.ftdata.co.uk/files/2010/02/CDS-and-refinancing-Matrix.jpg