NatWest puts pounds 3bn of loans on market

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The Independent Online
Bankers said yesterday there would be a rush to securitise corporate loans by selling them on the bond market if a pioneering NatWest deal proves attractive to investors.

NatWest confirmed yesterday it was selling $5bn (pounds 3.2bn) of corporate loans by repackaging them as securities, which would be offered to bond market investors.

Barclays was widely tipped in the bond markets as the next to make the move. Alan Brown, head of risk at Barclays, confirmed that the bank had studied the idea. He said: "I wouldn't rule it out but we're not in any active stages of launching it. We've looked at the techniques. It's purely what price."

Barclays had no immediate need to sell its loans in this way, he made clear.

But Adrian Laycock, managing director in London of Fitch Investor Services, the US credit rating agency which specialises in securitisation issues, said: "If this goes well, you can see the floodgates opening in the UK and Europe."

The deal, which will release approximately pounds 250m of capital, will be sold to investors from the end of next month and NatWest Markets, the investment banking arm of the bank, intends to start a series of roadshows to line up buyers for the new securities.

Many banks have been held back from securitising corporate loans by fears of a bad reaction from customers, but NatWest said its plan would make no difference to customers and their identity would not be passed on to buyers of the new securities.

The securities give investors an entitlement to the cash flow from the loans, but there is no direct relationship with the borrower. NatWest will remain the lender to the companies.

The operation is being carried out through a special purpose company, Rose Funding Group, which will take loans of up to five years' maturity made by NatWest to 300 companies and convert them into floating rate notes (FRNs) and commercial paper (CP).

Alby Cator, managing director of European primary markets at NatWest, said the 300 loans were a "representative sample of NatWest's lending portfolio to large corporate customers".

Rose will issue the paper in different tranches with different ratings, ranging from high investment grade to no rating. These ratings are not based on the creditworthiness of the borrowers but are simply a reflection of the amount of additional security provided by NatWest for each type of bond. The special purpose company will be provided with additional guarantees and capital to increase the creditworthiness of the paper it issues.

It took NatWest Markets just over a year to produce the idea, which was prompted by a desire to increase the return on its corporate loans, where profit margins have shrunk to rock-bottom levels because of tough competition.

Most loans to large companies are made as loss leaders, in the hope of selling fee-paying services to the same customers. Unprofitable lending to large companies is a problem shared by most banks.

NatWest, whose chief executive is Derek Wanless, hopes that if Rose is successful in selling the securitised debt it will be used to carry out the same operation for other banks.

NatWest said it had no immediate plans for the approximately pounds 250m of capital which will be released through the deal, although it was prepared to consider another share buy-back on top of the pounds 450m it bought back earlier this year.