Securitisation played a part in Asia’s recovery, too, helping banks and governments recycle balance sheets and offload risk. Structured financing survived test after test in the region, from the Asian financial crisis to consumer credit blowups, before the US subprime disaster finally put paid to any mainstream ambitions.
South Korea’s first asset-backed deal since the crisis, priced at the end of 1998, was a turning point in bringing investors back to Asia’s emerging markets.
The Export-Import Bank of Korea successfully sold US$225m of asset-backed notes in two senior tranches, even though the underlying assets were export-related obligations in Asia and places as exotic as Ghana, Ecuador and Russia.
“Nobody thought it could be done,” said Anthony Cutcliffe, former head of Asia securitisation at Warburg Dillon Read and then UBS. “It was real emerging-market risk at a time when nobody wanted to touch it.”
Kexim’s deal paved the way for Kamco to monetise non-performing assets acquired in the crisis, with four securitisations of bad loans in 1999. These exercises, however, were only possible because the earlier vintage of structured financings had all continued to perform. While monoline insurers had been forced to pay out on Thai auto ABS after the crisis, investors were protected.
“Asia’s structured market survived extremely well,” said Raj Shourie, who moved to Asia to run asset finance for Credit Suisse First Boston in 1997 before moving to Deutsche Bank and then ANZ. “The model was fine.”
Lesi Zuo, who stepped down as Standard Chartered’s global head of capital markets solutions in June, remembers Hong Kong’s mortgage-backed market in the depths of the SARS outbreak in 2003.
“There was negative equity everywhere, but all the RMBS performed well,” he said.
The irony that securitisation helped Asia weather a crisis only to cause one in supposedly more mature markets is hard to escape.
“The Asian market was probably 20 years behind the US,” said Cutcliffe, who argues the slow growth in Asia meant conservative structures were never diluted. He puts the contrast between Asia and the US down to a gradual creep – and plain old greed.
“In the US everyone who understood why deals were structured in that way left the industry or moved to a bank. Then the derivatives idiots came in with no concept of structuring at all. It was obvious these things were going to go wrong.”
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