24 May 2019

Bank of Ireland: UK RMBS deal to tap investors

Bank of Ireland yesterday announced a mandate to refinance a portfolio of existing RMBS backed by prime UK mortgage loans, and will look to raise an additional £250-350m in funding from investors at the same time.  


The Bowbell PLC refinancing mainly involves self-held/ retained securities used for liquidity and collateral management purposes, backed by a high quality portfolio of UK residential mortgages, but will also look to place newly issued bonds to third party investors as well.


The transaction is relatively straightforward but it shows the variety of funding mechanisms available to the bank to support NIM in the face of competitive pressures and the problems caused by negative rates/excess liquidity.  


May expected to announce departure plans today

Today’s newspapers overwhelmingly report that Prime Minister Theresa May will today set out a timetable for her departure. She is expected to announce that she will step aside next month and act as caretaker Prime Minister during the ensuing leadership contest that is touted to formally commence on 10 June.


Note that a number of ministers are reportedly in favour of an expedited contest that would see a new Tory leader (and Prime Minister) installed in July rather than at the party’s annual conference (29 Sep – 2 Oct). One advantage of this is that it would provide Mrs May’s successor more time to try to break the Brexit deadlock and lessen the likelihood of another extension to the UK’s current departure date of 31 October. The bookies have ex-Foreign Secretary, Boris Johnson as 6/4 hot favourite to succeed Mrs. May with ex-Brexit Secretary, Dominc Raab next in line at 6/1. If you fancy Jeremy Corbyn or Nigel Farage’s chances, they’re pretty good value at anywhere between 18/1 and 33/1.


European Parliamentary elections

It is one of the largest democratic exercises in the world, but suffers from low voter turn-out and is often used by voters as a protest vote to express dissatisfaction with ruling governments. This week’s European parliamentary elections have been brought into sharp focus amid a rise of populist parties and the ongoing Brexit negotiations in the UK.


The votes, taking place between 23rd and 26th (today in Ireland) have been described as an evaluation of the European project. There is a concern that anti-EU parties could for the first time win sufficient seats to seriously hamper EU legislation. This will be a major worry for the current leadership, particularly if the UK Brexit negotiations are extended beyond October 31.


Parties considered populist are expected to increase their footprint in parliament from ~15% to as many as 29% of seats, with the Brexit party and Matteo Salvini’s European alliance expected to make significant gains (although the former is expected to cannibalise the existing presence of UKIP). A sufficient surge in support could even see the share of seats held by the dominant coalition between Centre right EPP & centre left S&D parties falling below 50% for the first time in the history of the parliament.


Poor performance in the elections could also be a catalyst for domestic political change. We are already seeing the rise of the Brexit party at the expense of the Tories accelerate the demise of Theresa May. These elections could also have a significant bearing on Germany, where a poor performance by the SPD party there could cause them to reconsider their position as junior coalition party with Angela Merkels CDU.


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