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HVB Stocking Up on Structured Products
Asset Backed Alert, Harrison Scott Publications Inc. (November 11, 2005)
HypoVereinsbank wants to buy more than $1 billion of securitized products next year.
A London buyside team led by Mark Bowles would handle the purchases, possibly by launching a new commercial-paper conduit. That unit currently oversees $4 billion of structured-finance holdings, mostly triple-A-rated bonds backed by consumer assets.
Lesser quantities of collateralized debt obligations and commercial mortgage bonds are also on the group's menu, as are asset-backed issues with grades as low as triple B.
How HVB funds the investments could depend largely on a planned takeover by Milan-based UniCredit. Bowler said the combined banks might not want to keep as many of their assets on balance sheet, potentially necessitating the use of new or existing conduits for any incoming investments.
The conduit business has been a bit rough on HVB over the past few years, mostly because the bank's ratings made it too expensive to supply its own liquidity backstops. And while Moody's and S&P have since responded to UniCredit's bid by bumping up HVB's short-term grade to P-1/A-1, Bowler still plans to use alternative sources of liquidity.
For example, he may set up an entity that would reduce its need for traditional liquidity support by borrowing some methods from structured investment vehicles, including frequently marking its assets to market. "I don't want to be entirely dependent on the bank's rating," Bowler said.
HVB may also funnel some investments into Arabella Funding, an existing conduit that's run by HVB's home office in Munich. It could take part in repurchase agreements as well.
Bowler's seven-member team is part of a 30-person securitization unit at HVB. He'll probably gain one or two more staffers next year, most likely including a business manager. However, merger-related decisions will likely influence how Bowler builds his group. That's because while UniCredit is expected to let HVB take the lead in investment-banker matters, it's possible that some personnel will be rearranged following a Nov. 21 announcement.