Barclays and Santander lead SRT activity among European banks

Credit analyst Richard Barnes, of S&P Global Ratings, reports on the growing role of significant risk transfer securitisations in capital management strategies

Significant risk transfer securitisations are an established part of European banks’ capital and risk management toolkits, and Pillar 3 disclosures on retained SRT tranches indicate that the region’s largest lenders dominate issuance volumes, led by Barclays and Santander.
Some mid-size banks are also active relative to their balance sheet sizes.
At S&P Global Ratings we think that SRT issuance will grow and become broader-based as further banks look to manage their credit portfolios more actively through the implementation of the final Basel III standards.

Background in brief

We see Pillar 3 disclosures on retained SRT tranches as a reasonable indicator of banks’ issuance activity because transaction structures are similar – but not identical – across the region. European banks’ SRTs are mostly bilateral, synthetic deals in which they typically retain the senior tranche representing about 80% to 95% of the reference portfolio and sometimes a small first loss tranche covering the expected losses on the reference loans.
They usually sell a mezzanine tranche that is generally up to about 15% of each deal and transfers most unexpected losses on the portfolio to the protection seller.

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