A decade after bonds tied to U.S. home loans contributed to the financial crisis, British investment bank and financial services company Barclays is returning to the residential mortgage-backed securities market, Reuters reports.
Many banks retreated from selling and trading portions of loans tied to residential property, auto, or commercial real estate following the crisis. However, Reuters reports that Barclays, after assembling a team of more than 140 securitization bankers and traders, is preparing to re-enter the sector as investors are looking for higher returns on deals compared to traditional stocks and bonds.
“This was a 500 million pound ($632.80 million) business for Barclays in terms of revenues last year, when global peers are making 1 billion pounds a year, so for us to get to 500 million pounds additional revenue over three years or 100-150 million pounds a year should be achievable at a measured pace,” said Stephen Dainton, Barclays’ Head of Global Markets.
Barclays' return is led by Scott Eichel, a securitized assets trader who experienced the troubles of the mortgage-backed securities market leading up to the 2008 crash.
According to Reuters, Eichel has assembled a team of 144 bankers and traders who package and sell everything from commercial and residential home loans to more esoteric assets, such as media and sports franchise rights.
“The market has changed both outside and inside banks, both from a regulatory perspective and best practises inside firms,” Eichel said.
The report states that Barclays' comeback into the market does hold its risks, given that the bank paid $2 billion last year to settle a U.S. probe into its alleged mis-selling of mortgage-backed bonds that help trigger the crash. In a statement at the time, Barclays CEO Jes Staley called the terms of the settlement "fair and proportionate."
Barclays ranks sixth for sales of U.S. securitizations this year, which is up two places from last year.
The bank is hopeful that signs of softening U.S. regulations underpinning the securitization industry could help consolidate and expand its market share, the report stated.
A U.S. Treasury report in October 2017, prompted by an executive order from President Donald Trump, supported the stance that post-crisis regulation was too strict, according to the report.
“The result has been to dampen the attractiveness of securitization, potentially cutting off or raising the cost of credit to thousands of corporate and retail consumers,” the report said.