Yahoo Finance Wells Fargo Weighs Debut Risk Transfer as Banks Shore Up Capital
(Bloomberg) -- Wells Fargo & Co. is looking at essentially buying insurance on some of the loans in its portfolio using a transaction known as a synthetic risk transfer, potentially becoming the latest big bank to use the product to cope with looming capital rules.
Most Read from Bloomberg
Trump Has Only $6.8 Million for Legal Fees With Trial Underway
TikTok to Remove Executive Tasked With Fending Off US Claims
Ray Dalio’s Famous Trade Is Sputtering and Investors Are Bailing
US Dollar’s Extended Reign Delivers Stark Wake-Up Call for Markets
The San Francisco-based lender is in early discussions for an SRT tied to a portfolio of subscription lines, a type of credit extended to private equity funds, according to people with knowledge of the matter who asked not to be named as the details aren’t public. Conversations are preliminary and details of the financing may change, they added. The transaction may come later this year, the people said.
A spokesperson for Wells declined to comment.
The type of transaction Wells is considering typically sees lenders issue notes linked to a pool of loans, that also include a credit derivative. Investors tempted by yields that can exceed 10% snap up the notes, providing the bank protection against losses in the pool of loans. That effectively transfers the bank’s credit risk, enabling it to cut the amount of regulatory capital it has to hold against the assets.
The 2008 financial crisis sapped demand for synthetic securitizations, but some new kinds of structures are finding favor after the Federal Reserve last year broadened the definition of how they can provide capital relief. Soon after, both large and regional banks rushed to the market to issue the bonds, trying to beat the introduction of the latest wave of Basel III regulations that are expected to require them to hold more capital.
The issuers hitting the market have been finding willing buyers in the growing alternative asset manager industry. Money managers from D.E. Shaw to BlackRock Inc. are buying them, with the latter forecasting that sales of the instruments could grow by as much as 30% to 40% a year.
--With assistance from Hannah Levitt.
Most Read from Bloomberg Businessweek
How a Massive Hack of Psychotherapy Records Revealed a Nation’s Secrets
What Really Happens When You Trade In an iPhone at the Apple Store
Rents Are the Fed’s ‘Biggest Stumbling Block’ in Taming US Inflation
©2024 Bloomberg L.P.
