INVESTMENT BANKING GROUP N E W S W I R E Issue 19 - July 2010 A. A new securitisation deal out of the MENA region The comeback of the regional securiti- principal guarantee, which are then of initial portfolio balance, as well as zation market has been marked lately issued as repack notes from another an excess spread trapping mecha- CONTENTS by the issuance of ¥24Billion vehicle. The obligations of repack are nism; other enhancements include (~$270Million) JPY denominated, then unconditionally and irrevocably portfolio eligibility criteria and rapid A. A new securitisation deal out senior secured, auto-loans backed guaranteed by the Japan Bank for amortization triggers. The transaction of the MENA region notes on behalf of Emirates NBD International Cooperation. The equity has been assigned a provisional Aa2 bank. Emirates NBD Auto Finance tranche has been retained by the rating by Moody‟s. It is worth noting B. The European stress test Limited is a jersey based Asset Pur- originator. The notes give exposure to that securitization of auto loans has chase Company that had purchased a a highly diversified portfolio of UAE already been tested for companies in C. Real estate: foreign ownership portfolio of ¥30Billion auto loans re- individual and commercial obligors, the Middle East and mainly in Leba- or investment? ceivables from the originator, and with maximum concentration per obli- non thanks to a favorable legal frame- issued 2 tranches of notes: a senior gor not exceeding 0.10%. The struc- work and to the continuous support of D. Lebanese Turkish free trade: tranche A representing 80% of the ture involves a 3 year revolving period the Central Bank for this type of trans- competition or cooperation total portfolio and an equity tranche of and an FX swap which has been put in actions; the market witnessed so far 20% fully subordinated to the senior. place to swap the AED income into at least 4 auto-loans backed issu- E. Gold: the race is on The tranche A has been fully sub- JPY. The transaction provides various ances which were not rated, but which scribed to by the Japan Bank for Inter- levels of credit enhancements, among could however demonstrate the effi- F. Headlines national Cooperation, which had also which, an overcollateralization of 20%, ciency of such tool for both originators wrapped a portion of the notes with a a non amortizing cash reserve of 2.5% and investors■ B. The European stress test CONTACTS The Committee of European Banking The U.S conducted similar tests in books, where securities are assumed Supervision (CEBS) conducted a stress March 2009 as the financial crisis was to be held to maturity. This questions test on the EU‟s biggest financial insti- still in full swing. The test results reas- the credibility of the test because the 3rd Floor, Block A, tutions, in order to see how exposed sured investors in the health of the majority of sovereign bonds are held in Two Park Avenue Building, they are to the sovereign debt prob- country‟s 19 biggest financial institu- the banking book and would only suf- Park Avenue, Minet El Hosn, lems of the PIIGS* that have troubled tions, and helped spark the stock fer a writedown if there was serious Beirut, Lebanon the continent since December 2009. market rally that saw the Dow gain doubt of an issuer‟s ability to repay. The move came as investors were 36% by April 2010. In any case, whether the test was a Phone: +961 1 997998 growing more fearful that the sover- Some however, believe the European genuine attempt at gauging the Euro- Fax: +961 1 994801 eign debt crisis would put the banks‟ stress test‟s assumptions were too pean financial sector‟s strength or a Email: firstname.lastname@example.org solvency into question. The test was optimistic: The test assumed a 23% publicity move to ward off bond vigi- Website: www.bsec-sa.com performed on 91 of the EU‟s financial loss on Greek bonds. Many believe a lantes, the market response was rela- institutions (65% of total market), and 25-60% would have been more realis- tively modest; CDS spreads for Euro- tried to gauge the loss they would tic. Furthermore, the test only as- pean financial institutions tightened incur following a haircut on their gov- sumed losses on government bonds slightly, and the spread between Ger- ernment bond holdings. held on the banks‟ trading books; a man bonds and other European na- Seven (7) banks failed the test after it survey by Morgan Stanley suggests tions such as Greece and Spain also was shown that they wouldn‟t meet that only 10% of Greek government tightened. The response in the stock the Tier 1 capital ratio of 6% in the bond holdings are in the trading market was less conclusive as the case of a sovereign debt crisis. These books, while 90% are held to maturity European Stoxx 600 Index remained banks, having about $4.5 billion short- in their „bank‟ books. Haircuts how- relatively flat■ fall from meeting the requirements, ever, are applied only to the banks‟ * Portugal, Ireland, Italy, Greece and Spain include 1 German bank, 1 Greek bank, trading books, which are marked-to- and 5 Spanish savings banks. market, and not to their banking C. Real estate: foreign ownership or investments? The Lebanese economy attracts for- foreigners over the ability to own a Although foreign ownership is con- eign investments and liquidity through property in their home land. trolled by Lebanese law, there remain several sources inter alia tourism, Here comes the dilemma: on one multiple gaps that need closer atten- services sector, financial sector, expa- hand the Lebanese economy greatly tion and analysis. In this regard, vari- triate remittances, and most impor- needs to have foreign cash inflow from ous mechanisms have been imple- tantly through the sale of real estate the most vibrant sector, the real es- mented by other countries in order to assets. The recent Lebanese real tate sector; on the other hand Leba- attract foreign investments in real estate boom and the upsurge in prices nese nationals are struggling to keep estate, while at the same time control- have further encouraged land owners their natural right of real estate owner- ling the ownership conditions and to sell real estate assets to foreigners ship in their home country. Conse- levels. Restrictions could be loosened in order to make higher gains, which quently, it is important to differentiate in investment areas such as manufac- also increases the cash inflow into the between foreign ownership and for- turing areas, agricultural areas, touris- country. Looking into the cash inflow eign investment in real estate. The tic areas, while they could be tight- in itself, it provides prosperity and former transfers ownership of property ened in other non-investment areas growth and it is an indicator of a to foreigners in an unrestricted man- such as residential areas, natural strong economy, but only if such inflow ner and over an unlimited period of locations, etc. Other countries have is derived from real goods and ser- time, while the latter allows the owner more stringent restrictions on owner- vices provided by the Lebanese econ- to utilize the underlying real estate ship, for example restriction on inheri- omy such as manufacturing, agricul- asset for a certain period of time and tance amongst foreigners, and restric- ture, financial services, tourism, etc. to enjoy economical benefits, but tions on years of ownership. Govern- However, selling real estate assets is ultimately returning ownership to ments might also be expected to analogous to selling parts of the coun- Lebanese nationals. Any reforms in forego a portion of the tax revenues, in try itself and its limited resources in an this regard need to be focused on order to entice foreign investments in almost irrevocable manner. In addi- attracting foreign capital through for- light of the increased ownership re- tion, Lebanese nationals are put in eign investment in real estate, instead strictions■ direct and unfair competition with of being through foreign ownership. Page 1/2 Disclaimer: NewsWire is a private document owned and published by BSEC S.A for your information only and is not intended as an offer to buy or sell any securitisation or any structured financial product. Although all information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, no representation or warranty expressed or implied, is made to its accuracy or completeness. This NewsWire is prepared for private circulation and for general information only. The contents of this NewsWire, including all intellectual property, trademarks, logos, design and text, are the exclusive property of BSEC S.A, and are protected pursuant to copyright and trademark laws. No material from BSEC S.A NewsWire maybe modified, copied, reproduced, repackaged, republished, circulated, transmitted, redistributed or resold directly or indirectly, in whole or in any part, without the prior written consent of BSEC S.A. The consequences of any action taken on the basis of information contained herein are solely the responsibility of the person or organization that may receive this NewsWire. INVESTMENT BANKING GROUP N E W S W I R E Issue 19 - July 2010 D. Lebanese Turkish free trade: competition or cooperation A decade ago the Lebanese and the among Lebanese industrialists owing results as tourism boosted between Turks would have never imagined to Turkey‟s strong manufacturing the two countries add to technological themselves working together on politi- exports that could drive local busi- spillover and FDI. The Syrian example cal or economical levels. The Euro- nesses out of the market. The ques- could set an example that Lebanon pean delay to Turkey‟s EU member- tion of whether the agreement shall and Turkey can apply it in ancre Leba- ship coupled with other factors mainly proceed in same line as Jordan and nese sectors, not to mention as well growth in the Middle East market have Syria has posed doubts on the future the expected increase in the trade paved the way for Turkey to see its of Lebanon‟s already weak industrial volume between the two countries. Eastern Neighbors in a different way sector when faced with a mass of As rapid globalization could cause than it did in the last 50 years and to Turkish products entering the market small countries to exhibit disturbances move towards a regional integration. with no tariffs or any sort of legal ob- in the short run, protective market The region namely comprising Turkey, stacles. policies may be no less harmful espe- Syria Jordan and Lebanon is witness- Other views seem more favorable cially in the long run. A more prag- ing a process that is - to a certain regarding the proposed agreement. As matic approach to economic collabora- extent - similar to the process of how Turkey and Lebanon have similar tion between states may be regional EU was formed in the mid 20th cen- features in terms of reforms and pacts where economies can comple- tury. The four states have already demographic and consumption ment each other. Whether the four lifted visa requirements for individuals, growth, the two states remain fairly states cluster, which is known in Tur- in addition to numerous bilateral different in the driving force of the key as ShamGen (in reference to agreements including the free trade economy. Turkey has the most ad- Schengen zone), will emerge as a agreement, which has not yet been vanced economy among the four regional economic and political power accomplished between Lebanon and states, is candidate to be the main is an interesting question that the Turkey. economic dynamo of the cluster. Bilat- coming years will answer■ The free trade agreement that is yet to eral agreements between Syria and be signed has triggered some fears Turkey have already shown positive E. Gold: the race is on Gold has often been considered as the printed money flows into the economy phase” of global financial crisis. Ac- last resort in times of crisis rather than it has the effect of pushing up overall cording to the IMF, “Higher debt levels an ongoing investment. Unlike most of price levels. One of the main factors have the potential to impact financial the other commodities, it is produced that would lead to the increase in stability.” In his latest book, Georges for accumulation, not consumption. money printing, hence increase in Soros discussed the handling of the Unlike most of the financial instru- inflation levels, is war. “The world 2008 financial crisis stating that: “This ments, it has proven to be immune to smells war in the Middle East”: as is a grave misinterpretation of the credit crunches as it has little correla- repeatedly heard lately. In case of war, current situation. Humpty Dumpty tion with overall market performance gold prices are expected to further cannot be put together again.” Else- and with corporate performance. Gold increase because wars are funded by where in the book Soros writes, “I has also proven to be a hedge against borrowing which increases the need of regret to tell you that the recovery is inflation and a safe haven in times of money printing, and therefore further liable to run out of steam and may financial crisis. As a result, the de- increasing inflation. even be followed by a „double dip,‟ mand for gold in recent years has On the second angle, and following the although I am not sure whether it will been largely driven by the need of subprime crisis, the capital markets occur in 2010 or 2011”. such hedge in a recessionary econ- are still struggling in the recovery Consequently, and in such prevailing omy; and the concern is that both phase that, according to many ana- market conditions, as investors find inflation and financial crisis might lysts, might be followed by a further difficulty gaining confidence in the have not bottomed yet. deterioration of the world financial financial markets again, demand for On the first angle, inflation is not rising system. The latest announcement gold seems to have no foreseen limits. prices; it is a fall in the value of money from the International Monetary Fund Investors, rather than watching the due, among other reasons, to the (IMF) stated that Greece‟s financial adjacent chart, are more inclined to be printing of an excess of it. As newly crisis could be the start of a “new a part of it■ F. Headlines Banque Audi approved to purchase a 90% equity stake in the Egyptian Arabeya Online “AOLb” company which is considered to be the largest online securities trading company in Egypt. Abu Dhabi‟s crown prince Sheikh Mohammed bin Zayed Al-Nahyan is still considering an investment in BP. The oil company is looking for funds in order to ward off potential takeover bids after its share price lost 40%* of its value following the Gulf of Mexico oil spill. UAE said that it would suspend BlackBerry mobile services like e-mail and text messaging beginning in October due to BlackBerry‟s highly encrypted data system which offers security to users but makes it more difficult for govern- ments to monitor communications. Facebook to put off its initial public offering (IPO) until 2012 giving more time to gain users and boost sales. Google loses 13.2% of its market share in China, most of it to Baidu, as it struggles to keep advertisers who are weary of the company‟s future in the country. SEC fines Citi $75M for failing to disclose to investors $40 billion in risky mortgage assets. Page 2/2 Disclaimer: NewsWire is a private document owned and published by BSEC S.A for your information only and is not intended as an offer to buy or sell any securitisation or any structured financial product. Although all information and opinions expressed in this document were obtained from sources believed to be reliable and in good faith, no representation or warranty expressed or implied, is made to its accuracy or completeness. This NewsWire is prepared for private circulation and for general information only. The contents of this NewsWire, including all intellectual property, trademarks, logos, design and text, are the exclusive property of BSEC S.A, and are protected pursuant to copyright and trademark laws. No material from BSEC S.A NewsWire maybe modified, copied, reproduced, repackaged, republished, circulated, transmitted, redistributed or resold directly or indirectly, in whole or in any part, without the prior written consent of BSEC S.A. The consequences of any action taken on the basis of information contained herein are solely the responsibility of the person or organization that may receive this NewsWire.