Structuring the Future: How Post-Crisis Regulation Created Opportunities in Securitization Markets

TL;DR

This panel discusses the changes in the securitization market post-financial crisis and the opportunities created for professionals to make money in the credit markets.

Transcript

well thanks for having us this is to me a really interesting panel right we're talking about changes in the securitization market post financial crisis but that's pretty relevant when you think about the salt conference in the history this all conference I remember very clearly anthony calling our firm and saying in the crisis you know we've got to... Read More

Key Insights

• 👷 There are opportunities in the securitization market post-crisis, particularly in alternative lending areas, such as construction lending, US legacy securities, and distressed assets in Europe.
• 🥺 Regulatory changes have made it challenging for banks to provide loans for construction projects, leading to alternative lenders stepping in to fill the gap.
• ✳️ Banks' risk aversion and decreased risk appetite have created opportunities for specialized credit funds in areas like small balance commercial real estate lending and bridge lending.
• 🇪🇺 The European banking system is lagging behind the US in cleaning up non-performing loans, presenting opportunities for investors to buy distressed assets at discounted prices.

Questions & Answers

Q: Why have banks faced challenges in providing construction loans post-crisis?

Banks faced significant losses in construction loans during the crisis, leading to increased scrutiny from regulators. As a result, regulatory rules, such as the high volatility commercial real estate loan rule, have been implemented, making it difficult for banks to provide loans to developers with insufficient equity.

Q: How are alternative lenders benefiting from the contraction of balance sheets and risk appetite within the banking system?

Alternative lenders, such as specialized credit funds, are capitalizing on the decreased risk appetite of banks and the contraction of their balance sheets. These lenders are targeting areas that banks are retreating from, such as small balance commercial real estate lending and bridge lending, providing borrowers with quicker decisions and attractive rates.

Q: What opportunities exist in the European banking system post-crisis?

European banks are struggling with non-performing loans and recapitalization challenges. As a result, there are opportunities for investors to buy distressed assets, particularly in Southern Europe, where banks need to sell at discounted prices. Local expertise and understanding of the property markets are essential for successful investments.

Q: How is the structured credit market providing attractive investment opportunities?

The structured credit market, particularly collateralized loan obligations (CLOs), offers attractive risk-adjusted returns compared to generic credit products. CLOs provide an alternative source of financing for loans, allowing banks to offload risk and continue lending. Additionally, the market is less reliant on dealer participation, creating opportunities for players who understand these complex products.

Summary & Key Takeaways

• The panel discusses the regulatory changes in the banking system post-crisis and its impact on construction lending, particularly the challenges faced by banks in providing loans for construction projects.

• Panelists highlight opportunities in the US legacy securities market, including aircraft and bridge lending, as banks have become more risk-averse and financing is shifting towards alternative lenders.

• The European banking system is lagging behind the US in terms of cleaning up non-performing loans, creating opportunities for investors to buy distressed assets in Southern Europe.

• The panel also explores opportunities in the structured credit market, particularly in collateralized loan obligations (CLOs), where there is less demand from dealers and banks, and potential for attractive risk-adjusted returns.