RBS Issue Mortgage Backed Securities

by Mark Johnston

The Royal Bank of Scotland Group Plc (RBS), Brittan’s biggest state run bank, is taking the notable first step of its kind and releasing £4.7 billion or $6.1 billion in securities backed by mortgages since the financial crisis began in 2008.  These will be released back into the UK residential lending market. 

RBS are releasing $660 million of notes and $1.3 billion with weighted lives of about 0.99 years priced at 120 basis points over the interbank lending rate or LIBOR back into the market. 

For £644.7 million, three portions of the 3.35 year bonds and $400 million will be released with a basis spread of 145 above the interbank lending rate.  The final part of the deal will see £1.21 billion released at 5.14 years, priced at 155 points above the LIBOR.  Arran Mortgage Funding Series 2011 will issues these bonds as the RBS vehicle.  They declined to comment as this deal is a private venture.  Some low grade tranches were also on the table but these were declined to re-release and were retained.  Also retained were some top rated bonds, again, no comment on the value of these.

This release marks a substantial step in the recovery in the asset-backed markets.  Also marks RBS’s efforts to rebalance the funding sources in the wake of the crisis.  The returning of securities back into the market is considers vital to the wider recovery of the UK and in the future of individual banks.  As this frees them up and allows acquisitions of more loans.  

The toxic loans that caused the credit crunch has tarnished virtually all security backed products, these were initiated in the US sub prime market and poisoned all US asset backed deals. 

To support RBS’s rapid growth and ideas of expansion, she depended quite heavily on the securitisation market.  They were not the only UK bank to conduct business in this manner.  Since the inevitable freeze out in this market, banks like RBS have had to rely more on expensive retail deposits and funding provided by the UK Government, due to start retracting in the next few years.

RBS is then, quite understandably, attempting to plug the gap that the government funding will leave.  Targeted on lending, like other rivals, the bank needs to uplift the amount of loans that she supplies in both the personal and commercial areas.

March, 2011 saw the Royal Bank of Scotland sell a portfolio of European corporate loans worth in the region of about £835 billion in an effort to balance its books and meet loan targets.  Further reducing its balance funded by the UK government.

The Chief Executive Officer for RBS, Stephen Hester said that the group are aiming to shrink their balance sheet after they received and embarrassingly large and world record bailout in 2008.



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