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Sliced and sliced again: investors’ latest trick for risk transfer
‘Retranched’ synthetic securitisations offer higher yields, but questions remain over legality of structures
Investors have found a clever – if legally questionable – way to boost the returns of synthetic risk transfer (SRT) deals issued by US banks.
Tougher regulatory requirements in the US mean banks must bundle a larger portion of the risk in their loan portfolios to achieve meaningful capital savings from synthetic securitisations – resulting in a ‘thicker’ junior tranche.
The resulting lower coupons have led some investors to explore ways of boosting returns. A method gaining traction known as
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