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Citigroup, Santander sell $1B of trade finance assets

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December 17
8:14 PM 2013

Obscure trade finance assets worth $1 billion were sold by Citigroup and Santander in a securitization aimed at facilitating the transfer of these assets from bank balance sheets to institutional investors, the Financial Times reported. These assets are no longer profitable for banks because of the new capital requirements under the Basel III rules. Moreover, pension funds and other investors who are looking for yield in a low interest rate environment are also more willing to pouring money in new asset classes, the report said.

US-based Citigroup and Santander, its Spanish counterpart, have tried to get the securitization called Trade Maps 1 completed in the past two years. It had been plagued with legal challenges since this is the first trade finance securitization which involved more than one bank and involving more than a single country, according to the banks. The price of the deal was at 83 basis points more than one-month Libor.

Citi Head of Trade John Ahearn told the Financial Times, "While I think we're leading the industry there's a lot of noise around trying to bring trade paper to the institutional market. What was fairly obscure on-balance-sheet assets that not many institutional investors knew very much about all of a sudden starts to become a more understood asset class. That I think is interesting."

In August, BNP Paribas also launched Lighthouse, a commodity trade finance securitization, which issued paper supported by short-term loan advances it offers to oil and metals shipping firms. This kind of financing is usually used in trade finance. It covers the time between payments to suppliers and payments from the final buyers, the report said.

Other lenders and trading houses are thinking of going the same path. Ahearn said a second securitization was already underway, with Citi already receiving "seven or eight" inquiries from possible partners, the report said.

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