Six years ago, UMB Financial was an obscure name among participants in the asset-backed securities (ABS) market. Stuart Mitchell was a senior relationship manager in Deutsche Bank's corporate trust division, and he noticed UMB popping up on his radar screen because the global banking giant was losing aircraft securitization trust deals to the Kansas City-headquartered regional bank.
After some research, he discovered that UMB, now with $33 billion in assets, had been in the trust business for 75 years, and it recently had brought over a team specializing in the aircraft niche from Wells Fargo. Mitchell pitched the notion to UMB's top management of broadening the bank's ABS trust services, and soon after he and members of his Deutsche Bank ABS trust team, each with more than 15 years of experience, moved to the much smaller regional bank.
That experience and the executives' connections have been a boon to UMB, whose ABS trust-services now rank among the top 10 providers. It has also benefited issuers, who can enter the market with an experienced partner to walk them through the technical steps of putting together an ABS transaction, with the help of the latest technology.
Mitchell spoke recently with Asset Securitization Report about UMB's business and key developments and how the trustee is keeping pace with trends in the ABS market.
Asset Securitization Report: How did UMB climb the securitization-trustee rankings so quickly?
Stuart Mitchell: UMB is new to the business, but we're not really so new because of all the experience we collectively have. My model is based on providing quality services throughout all the asset classes, and clients have followed us. Word has gotten out in the industry that UMB is a significant player. The services you want to provide in the trust business are owner trustee, indenture trustee registrar paying agent, and a Delaware trust office, which we opened up last December.
ASR: Does UMB specialize in certain types of assets?
SM: We did every asset class at Deutsche Bank, so there's really nothing we haven't seen before. Every now and then an investment banker will create something that's out of the box, like the data-center deals we've recently seen. The world is changing and if something is being created and there's a receivable, it likely will result in an ABS deal.
Oil and gas is really big right now, and that wasn't around a decade ago. We've probably done more than a dozen oil and gas deals, where drillers are selling the rights to the oil and gas revenues over the next 10 years in return for $150 million to $300 million that gives them working capital to build more wells.
ASR: You would think those deals would have started much earlier.
SM: Most companies go to a bank to get a loan or line of credit, but if interest rates are rising and those rates become too high, then the rates and/or flexibility from securitizations may be more attractive. A lot of people have never seen a securitization before, so that's one of the reasons we've been so successful in deals like oil and gas. We can walk clients through the process: This is where you need to send your receivables every day; we'll give you reports to show what's been received; then you'll send us the payment waterfall on a monthly basis; we may have to move money into the reserve account, or make this or that payment. It's a bit of a handholding experience for new issuers.
ASR: Where do you see challenges for the ABS market?
SM: When interest rates rise, deal flow slows down, but so far deal flow has been pretty steady. When you look at the assets supporting securitizations, they're mostly consumer related, and consumers are still out going to restaurants, buying cars and otherwise spending money. It may be a bit more expensive, but there's still doing it.
Everybody said the auto market was going to crash after COVID because people weren't working and paying their bills, but people are still buying cars even in the non-prime market. We've already closed three non-prime deals this year with one client and two with another client. So they're on target to have a very good year. Consumers still need to get to work.
ASR: Does the SEC's conflicts-of-interest proposal potentially present a challenge to UMB?
SM: Banks I previously worked at were big lenders to a lot of the trust clients we worked with, so it raised the question of whether the lender or investors came first. UMB is a significant lender to its corporate base, but we've taken hard look at potential opportunities on the ABS side and stayed away. So we're probably not going to run into some of the conflicts-of-interest issues that other trust players may have. We don't want to be number one in the industry. Instead, we focus on quality of service and the handholding and explaining the process to clients.
ASR: What other parts of the process to you provide?
SM: Besides the Delaware trust and the owner trustee offices, we do the indenture trustee and backup servicing, so if the deal goes sideways clients know that a third-party servicer can step in. We want clients to feel comfortable that whatever deal they bring to us, UMB is going to perform very well and be there from inception to the day the deal pays off.
We have a third-party analytics team that does cashflow modeling and creates the investor report. And we use artificial intelligence (AI) to verify contractual information efficiently.
ASR: How does the AI work?
SM: Take unsecured consumer loans, for example; the consumer goes online and fills out his or her name, loan amount, interest rate, etc., and the loan is put in pool for securitization. We're required, as a third-party custodian, to verify certain information in those contracts, to verify for investors that these contracts actually exist. Our AI system can do that in less than two hours, and we can tell a client, "You have 5000 loans and no exception items, or you have 4990 loans and 10 exemption items." That's another nuance we can bring to the table, to give the client comfort that we can do everything required to get them from a warehouse of loans up through a securitization and, God forbid, through a default situation.
ASR: How long have you had AI in place?
SM: When we first started out, we would work weekends reviewing these files. I happened to ask our third-party analytics team, Intain Technologies, if they had a solution, and sure enough they had a sister company that had put this software on the backburner because no one was using it. They dusted it off and modeled it for us, and now it's working like a finely oiled engine. We've had it in place for over a year now.
