Piraeaus Bank, the third-largest private banking group in Greece, began marketing a 750 million ($965.9 million) Greek RMBS last week via joint lead managers Citigroup Global Markets and UBS. Dubbed Estia Mortgage Finance, the transaction offers investors three classes of triple-A, single-A plus and triple-B notes.
While this is the third RMBS deal to be issued by a non-government related Greek entity, it is the first to come to market since the supreme court ruling on a consumer class action regarding prepayment penalties on floating rate mortgages and interest charges - where interest is quoted on a 360-day basis but computed on a 365-day year basis. "Some borrowers were charged unfair rates and the ruling was to determine whether these borrowers would be able to reclaim the charges," one analyst looking at the deal said. "The court ruled that these consumers would be entitled to their money."
In prior transactions S&P said it had to size for the risks associated with what are now considered illegal charges. "The courts decision has, in a sense, crystallized that view and given contingent liability in those mortgages, which means that these issuers have to create an enhancement that addresses these costs," said one source. For Piraeaus it meant the bank would have to cover upfront any liability arising as a result of the court's ruling with respect to any previous penalties and interest charges paid by the originator.
Despite the recent widening trend, Greek mortgage lenders are increasingly considering securitization markets, said analysts. RMBS pricing has only softened by a few basis points from record tights seen earlier this year, which saw some deals priced at seven basis points.
"Triple-A pricing for ABS today has clearly made it an attractive way for Greek banks to consider how to fund their mortgage books," said one analyst. "And if you look at the level of indebtedness on a GDP basis compared to other EU countries, Greece's is relatively low. It's the same type of effect seen in other countries where the lower EU rate came in and an increased interest in ABS financing followed - Greek banks are now thinking about where they will fund their mortgage uptake."
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