Joao Garcia BMB 2010 Presentation

1. Brasil Means Business, Amsterdam, Mar 29th 2010
Investing in Brazilian Securitization Instruments
João Garcia1 , Serge Goossens2 , Hebert Kimura4 , Lucas Neto5
Jacob Perera3
1 Sacred Heart University, Rue Alcide de Gasperi 7, Chambre de Commerce, L2981
Luxembourg (joaogarcia18@yahoo.com) 2 Senior Quantitative Analyst, Treasury and
Financial Markets, Dexia Bank (Serge.Goossens@gmail.com) 3 Professor Titular, Dep. of
Economy 4 Professor Adjunto, Dep. of Economy 5 Ph.D. Candidate, Dep. of Economy
Universidade Presbiteriana Mackenzie São Paulo, Brasil
The opinions expressed here are those of the authors and do not necessarily represent those of DEXIA neither Mackenzie
University.
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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2. Main Characteristics
Half the Brazilian market is exposed to materials and energy
Ranked 75th on Transparency International’s Corruption
Perceptions Index
From the BRICS we have: China (79th), India (84) and Russia
(146th)
Population of about 200m
Average return of 19.9% per year in the last 10 years
MSCI EM : 10.1% per year
MSCI World: 0.2% p.a.
Market capitalisation 1.3 trillion USD
Second largest for EM
40% of Brazilian Equity Index: Vale do Rio Doce (mining) and
Petrobras (oil)
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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3. Main Characteristics
Potencial booming consumer market
Brazilian incomes will rise and so will consumer spending
White goods, autos and property
Lowest ever interest rates
Credit and consumer spending will increase enormously
Recent discovered deep sea huge oil fields set to become a major
investment attractor
Oil income will be in the coming years / decades a boost to the
country industry
It has the potential to contribute enormously its rise as an
important economic power.
Possibilities of investments in stocks and shares, energy,
agriculture or Brazilian real estate
World Travel and Tourism Council (WTTC) estimates:
2010: Growth of 5.9% of GDP
Expected Annual growth (next 10 years): around 5.6%.
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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4. Housing in Brazil
Acceleration Growth Program / Programa de Aceleração de
Crescimento
Government Program: My Home, My Life Phase 1
City Ministry Resolution 141
Time Horizon 2010
Gov. Subside 34 bi BRe / 14 bi Eur / 19 bi USD
Caixa Economica Federal (FGTS)
Goal: Financing 1 mi houses for low income population
Government Program: My Home, My Life Phase 2
City Ministry Resolution 141
Time Horizon 2010
Gov. Subside 48-72 bi BRe / 20-30 bi Eur / 27-40 bi USD
Caixa Economica Federal (FGTS)
Goal: Financing 3 mi houses for low income population
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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5. Securitization and Capital: Originator Point of View
Bank A
Heavily Invested Heavily Invested in
Before After Securitization instruments
in Bonds
Loss Distribution Loss Distribution
ECAP
Probability
Probability
ECAP
Less ECAP
Loss Loss
EL Business Strategy
Securitization
Download single name
Loss Distribution
instrument…
1 Investors
Probability
Upload multi name
2 Stays in the Bank instrument…
1 Logic: Less RC and ECAP
2 2
Loss
Focus on Business Origination
Minimal concern with managing a portfolio of loans
Insentive: Economy of Scale
Reduction in costs
Higher Efficiency in the use of capital
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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6. Securitization and the Economy
Assume one invests in houses, say 10 houses
Impact on economic activity is the one of only 10 houses
Construction companies
Real state rental and vendors
Housing Accessories
Banks and other financial companies
One delay on rental payments is immediately seen by the investor
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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7. Securitization and the Economy
Assume one securitizes the cash flow of the houses
Positive impact on economic activity is the one of 1000 houses
Construction Companies build more houses
There are more houses to rent and sell
More housing accessoires are sold
Increase in banking and financial activity
Houses became more affordable!
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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8. Securitization: the Investor Perspective
Markowitz and Portfolio Management
Portfolio 1: Portfolio 2:
Two Large Positions Several Small Positions
Assumptions (CAPM based):
A portfolio manager is better off with Systematic than with
Idiosyncratic risk.
Substituting single name to multiname exposure increases return
and efficiency in the use of capital.
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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9. Securitization: the Investor Perspective
Collateral ABS Notes
Risk Increases
Securitization
Bonds, Loans,
ABSs
• The Securitization technology transfers back to the market assets that
otherwise would remain illiquid in the portfolios of companies.
• Investors can take systemic risk at different points of the capital structure
• Substituting single for multiname exposure increases return and efficiency
In the use of capital.
• CAPM supports the investment strategy
What went wrong then?
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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10. Brazil and Securitization
Why is it necessary?
Insentive 1: Country is rich in commidities
Agribusiness (e.g. sugar, coffie, cocoa, soja)
Iron ore, steel
Oil: recent discovered huge deep sea reserves
Insentive 2: Important forthcoming world eye catching events
Event 1: World Cup 2014
Event 2: Summer Olympic Games 2016
Events (1 + 2) implication:
Enormous investiments in infra-structure:
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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11. Brazil and Securitization
Construction related Jobs consequences:
An enormous increase in consumption
Housing apparels
Ikea like companies
Financials:
Mortgages
Credit card and auto loans
Transportation companies
Air planes, trucks, busses
Turism realated companies
Hotels and restaurants
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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12. Brazil: Securitization Milestones
Mesbla 1992: Credit card receivables
Mappin 1995: Client receivables
Bompreço 1996: credit card receivables
Cibrasec 1999: Real estate securitization
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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13. Brazil: Securitization Milestones
Two majors Securitization instruments
CRIs: Certificate of Real Estate Receivables
FIDCs: Receivables Investment Funds
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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14. Real Estate and Securitization
CRIs: similar to Mortgage Backed Securities
Colateral: real estate receivables (residential or commercial)
Tranches: senior or junior
Interest may be fixed or floating
Indexed to Brazilian price indeces
IGPM: reflects prices in general
IPCA: linked to consumer prices
It may not be indexed to foreign currencies
Payments of interest and / or principal usually monthly
Single payment at maturity is possible
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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15. Asset Backed Securities
FIDCs: Receivables Investment Funds
Structured investment vehicles
Pool of receivables originated by one or multiple sellers
Receivables:
Any kind of credit rights
Originated from operations in the commercial, industrial, services
or financial sectors
Receivables can be performed or future flow
Open or closed-ended funds
Senior, subordinated and mezzanine classes / tranches
A FIDC can have several issues, of different terms of duration
Interests can be fixed or floating
Usually indexed to SELIC, Brazilian Fed funds
Indexation to foreign currencies is not allowed
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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16. Brazil: Securitization and Sectors
Distribution of Securitization per Economic Activity of Issuer
Source: Uqbar - www.uqbar.com.br
Sector Amount (BRe) (%)
Financial Intermediation 7,112,263,054 58.4
Multisegment 2,361,016,707 19.4
Transformation Industry 1,510,665,510 12.4
Commerce 414,837,682 3.4
Eletricity, gas and water 370,031,201 3.0
Services 173,980,225 1.4
Construction 88,958,477 0.7
Agriculture and Pecuary 73,237,107 0.6
Telecomunications 43,348,000 0.4
N.A. 28,071,292 0.2
Education 9,420,000 0.1
Insurance and Previdence Complementar 1,250,000 0.0
Pessoa Física 1,000,000 0.0
Total 12,188,079,255 100.0
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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17. FIDC and Collateral Composition
FIDC Collateral composition for the years 2008 and 2009
It does not include the Petrobras FIDCs
Source: Uqbar - www.uqbar.com.br
2008 (%) 2009 (%) 2008 (BRe) 2009 (BRe)
Tributos 0.6 0.0 100,000,000 0
Direitos 0.0 0.0 0 1,000,000
Títulos Mobiliários 0.3 0.2 52,152,346 23,131,427
Recebíveis do Agronegócio 2.8 0.2 473,897,890 30,000,000
Recebíveis Educacionais 0.6 0.6 106,277,608 76,002,562
Crédito Imobiliário 0.0 2.4 0 288,958,477
Prestação de Serviço Público 1.0 3.0 163,231,333 370,031,201
Crédito Pessoa Jurídica 2.5 3.2 416,381,730 386,562,798
Setor Público 3.9 3.5 657,175,734 431,861,506
Crédito Pessoal 17.6 11.8 2,965,525,101 1,434,974,361
Financiamento Veículos 16.8 14.9 2,826,632,967 1,810,696,342
Recebíveis Comerciais 14.3 21.5 2,400,171,326 2,621,017,044
Multiclasse 39.7 38.7 6,676,924,597 4,713,843,536
Total 100.0 100.0 16,838,370,633 12,188,079,255
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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18. Volume of FIDC and Collateral Composition
Volume of FIDC emissions per year
It does not include the Petrobras FIDCs
Source: Uqbar - www.uqbar.com.br
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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19. Evolution of CRIs
Volume of CIRs emissions per year
Source: Uqbar - www.uqbar.com.br
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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20. FIDC Investor Profile
FIDC investor distribution
The total outstanding is about 92 bi BRe$
Source: Uqbar - www.uqbar.com.br
Profile Total Outstanding (BRe$ Mi) FIDC Petrobrás (BRe$ Mi) 2009 (BRe$ Mi)
Entities of Private Previdence 564,016,716 0 564,016,716
Investment Funds 3,709,936,051 0 3,709,936,051
Entities linked to the Credit Originator 80,942,461,205 80,647,592,760 294,868,445
Other Financial Institutions 1,092,522,314 0 1,092,522,314
Fin. Inst. Linked to Cred. Orig. 1,101,798,422 0 1,101,798,422
Foreign Investors 59,569,318 0 59,569,318
Other non juridic entities 28,737,784 0 28,737,784
Other juridic entities 50,620,582 0 50,620,582
Intermediary Inst. Members of Distr. Consorce 368,442,995 0 368,442,995
Sub Total 87,918,105,387 80,647,592,760 7,270,512,627
Not considered 278,475,459 0 278,475,459
Not Known Affiliation 585,928,542 0 585,928,542
Profile Not Defined 4,057,605,568 0 4,057,605,568
Total 92,840,114,955 80,647,592,760 12,192,522,195
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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21. DEACON
sation and CDOs
sing Investment Skill Global
securitisation
Global securitisation and CDOs
Deacon
flows from underlying assets (including
n) into a smoothed repayment stream,
d for a variety of purposes – to improve
and CDOs
The Art of
e sheets, to diversify funding sources, to
ic profile. In order to achieve successful “As a description of the challenges faced in seeking
value investments, issuers and investors out the elusive alpha of active management, Charles
olved, and to aid this understanding, the Jackson’s book merits an alpha-plus.”
structuring of, transactions, as well as – Alastair Ross Goobey, Chairman, Hermes
Credit
r the future. Focus Asset Management
“Charles Jackson presents in lucid prose and elegant
ew of global securitisation, asset-backed mathematics a concise guide to the ecology of the
nalysis of: recent synthetic and credit jungle. He describes the landscape and history of the
nd other securitisations; the new Basel habitat, classifies its successful predators, examines
ide accounting standards; the technology how they are themselves hunted and concludes with
workings of 52 global markets ranging an acute analysis of the investment and business
sia, Latin America and Australasia. strategies that will shape the industry’s future.”
– Colin Maltby, Chief Executive, BP
Derivatives
curitisation and CDO practitioners at Investment Management Ltd
law firms, accounting firms and rating
“Charles Jackson’s book is highly topical and a
d corporate issuers and investors, and
veritable tour de force on issues facing the fund
argon and know-how. management industry today. His discussion on
portfolio managers’ skill, intuitive versus systematic
investment approaches and how this impacts on
Demystifying the Black Swan portfolio manager remuneration, and ultimately
industry structure, is particularly insightful.”
– Andreas EF Utermann, Global Chief
Investment Officer/Chief Executive Officer,
Allianz Dresdner Asset Management
“Active Investment Management masterfully blends
the theoretical and the practical. This is not a quick
fix book with three easy lessons on actively managing
FINANCE/INVESTMENT
JOAO GARCIA your investment portfolio. Instead it carefully shows
how the battle for excess returns can be fought and
won.”
SERGE GOOSSENS – Daniel L White, Professor of Finance
Emeritus, Georgia State University
finance.com
front title line up with wf logo 3mm shift to left? 10/8mm clear right
More info available on:
http://www.sergeandjoao.com/
Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam)
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