Joao Garcia BMB 2010 Presentation

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Joao Garcia BMB 2010 Presentation

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Joao Garcia BMB 2010 Presentation

  1. 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) Securitization in Brazil Mar 29th 2010 1 / 21
  2. 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) Securitization in Brazil Mar 29th 2010 2 / 21
  3. 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) Securitization in Brazil Mar 29th 2010 3 / 21
  4. 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) Securitization in Brazil Mar 29th 2010 4 / 21
  5. 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) Securitization in Brazil Mar 29th 2010 5 / 21
  6. 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) Securitization in Brazil Mar 29th 2010 6 / 21
  7. 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) Securitization in Brazil Mar 29th 2010 7 / 21
  8. 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) Securitization in Brazil Mar 29th 2010 8 / 21
  9. 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) Securitization in Brazil Mar 29th 2010 9 / 21
  10. 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) Securitization in Brazil Mar 29th 2010 10 / 21
  11. 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) Securitization in Brazil Mar 29th 2010 11 / 21
  12. 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) Securitization in Brazil Mar 29th 2010 12 / 21
  13. 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) Securitization in Brazil Mar 29th 2010 13 / 21
  14. 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) Securitization in Brazil Mar 29th 2010 14 / 21
  15. 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) Securitization in Brazil Mar 29th 2010 15 / 21
  16. 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) Securitization in Brazil Mar 29th 2010 16 / 21
  17. 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) Securitization in Brazil Mar 29th 2010 17 / 21
  18. 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) Securitization in Brazil Mar 29th 2010 18 / 21
  19. 19. Evolution of CRIs Volume of CIRs emissions per year Source: Uqbar - www.uqbar.com.br Garcia, Goossens, Kimura, Lucas & Perera (for Amsterdam) Securitization in Brazil Mar 29th 2010 19 / 21
  20. 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) Securitization in Brazil Mar 29th 2010 20 / 21
  21. 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) Securitization in Brazil Mar 29th 2010 21 / 21

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