Natwest Bank Frees Capital By Securitising $5bn Loans

Britain's National Westminster Bank Plc on Wednesday boosted its capital base by around £200 million ($313 million) by turning $5 billion worth of high-quality but low-margin corporate loans into securities.

NatWest said it would package the loans, made by its investment banking unit NatWest Markets, and issue asset-backed floating rate notes and commercial paper in the Eurobond market.

This transaction is a significant step in removing low-margin assets from the balance sheet, said NatWest chief executive Derek Wanless.

Banking analysts agreed the overall significance of the move "" known technically as securitisation "" was marginal since Natwest is already rich in cash, although they welcomed its efforts to maximise shareholder value.

 

It's a sound strategic move getting assets off the balance sheet but the capital significance is reasonably small in terms of the group, ABN AMRO Hoare Govett banking analyst Steven Thorn said.

Thorn said that NatWest, after lagging other banks in aggressively removing low-margin loans from its books, is now starting to match them.

The move rekindled speculation over what NatWest was planning to do with the extra funds since it already has more than adequate capital ratios and these would be further raised.

The bank is known to want to boost its capacity to sell retail financial products in Britain, possibly through the purchase of a life insurance company or building society, but Wanless said recently it had not found any acquisitions which met its criteria.

In the absence of acquisitions, NatWest in July announced a £450 million share repurchase programme which, it said, was in line with its policy of returning value to shareholders.

Corporate loans have carried notoriously low margings in recent years with some banks withdrawing to a large extent from this type of business.

But banks have often thought it important to bite the bullet and accept low returns if they wish to establish or maintain banking relationships with large corporate clients who could bring other types of highly profitable business. Some analysts thought other banks might follow NatWest.

I think banks will continue to reduce the amount of money they have tied up in low-margin, low-yielding business, Robert Law at Lehman Brothers said.