Where the Americans lead the Europeans are not (this time) too far behind. Following recent news from the U.S. that First Union Capital Markets is mulling a securitization backed by loans purchased from online originators comes confirmation that securitization will be a central strategy for a new European online mortgage lender, Europeloan (www.europeloan.com).
The company, owned by the structured finance boutique Fredell & Co. with partners
ABB, GIMV (the formerly state-owned Flanders investment company), and Bouwfonds (100%-owned by ABN AMRO) is soon to start offering mortgages and other loans and will be raising funding via the securitization market.
"Securitization obviously solves your capital problems," said Fredell & Co.'s Peter Fredell, a well-known European securitization character. "You don't have to hold equity against the assets, because you are selling the risk and you can reuse the equity over several turn-around cycles. You originate e100 million, you sell that and then you have freed-up capital to originate another e100 million."
When this is combined with the low costs of online origination you have a super-efficient bank, Fredell said.
The lender, which is based in Belgium, will initially target Belgium and Sweden, before moving on to Germany and the rest of Europe. Fredell rejected the suggestion that securitizing loans from consumers in different countries will make for difficulties, instead arguing that the diversity it will bring will be good for investors.
A similar operation is soon to be launched in the U.K. also with securitization as a core funding strategy. Sierracities.com, a U.S.-based online small business loan originator, has set-up shop in London, said the company's Bob Henchey, an ex- JP Morgan securitization market veteran. And asset-backed issuance has been targeted as a major funding source.
Henchey added that the high margin nature of small business loans lends itself perfectly to securitization, though in the short-term much of the company's financing will be through brokerage certificates of deposit.
European asset backed pros suggested that the parceling of mortgages and loans originated online will not for long be the preserve of relatively small start-ups, but is likely to be the funding strategy for more established (in internet terms) lenders such as Britain's Egg bank - which is rumoured to be mulling a securitization - plus its continental counterparts.