Travis Perkins and Polymetal to lose out in FTSE 100 reshuffle

Builders’ merchant Travis Perkins and mining company Polymetal face relegation from the FTSE 100 after their recent performances were hit by political events. The share price of Travis Perkins has dropped 29 per cent since the UK voted to leave the EU in June, as economic uncertainty has sparked concerns among some investors about the […]

Continue Reading


Eurozone inflation climbs to highest since April 2014

A welcome dose of good news before next week’s big European Central Bank meeting. Year on year inflation in the eurozone has climbed to its best rate since April 2014 this month, accelerating to 0.6 per cent from 0.5 per cent on the back of the rising cost of services and the fading effect of […]

Continue Reading


Wealth manager Brewin Dolphin hit by restructuring costs

Profits at wealth manager Brewin Dolphin were hit by restructuring costs as the company continued to shift its focus towards portfolio management. The FTSE 250 company reported pre-tax profits of £50.1m in the year to September 30, down 17.9 per cent from £61m the previous year. Finance director Andrew Westenberger said its 2015 figure was […]

Continue Reading

Capital Markets, Financial

BGC Partners eyes new platform to trade US Treasuries

BGC Partners plans to launch a new platform to trade US Treasuries early next year, in a bid to return to a market in the middle of evolution, according to people familiar with the plans.  The company, spun out of Howard Lutnick’s Cantor Fitzgerald in 2004, sold eSpeed, the second-largest interdealer platform for trading Treasuries, […]

Continue Reading


RBS share drop accelerates on stress test flop

Stressed. Shares in Royal Bank of Scotland have accelerated their losses this morning, falling over 4.5 per cent after the state-backed lender came in bottom of the heap in the Bank of England’s latest stress tests. RBS failed the toughest ever stress tests carried out by the BoE, with results this morning showing the lender’s […]

Continue Reading

Categorized | Capital Markets

VW car loan securities at risk of losses

Posted on September 30, 2015

Martin Winterkorn©Bloomberg

Martin Winterkorn with a VW Passat

Investors in securities sold by Volkswagen may incur losses if prices of second-hand cars fall sharply due to the emissions scandal, Fitch Ratings has warned.

Yields on the company’s asset-backed securities, which move inversely to price, have increased by around 10-15 basis points over the past week, according to market participants.

    Asset-backed securities are bond-like instruments backed by underlying loans. In this case, the securities are based on loans used for the purchase or lease of Volkswagen vehicles.

    The German company’s emissions crisis could have an impact on these complex structures — an important part of the way Volkswagen funds loans and leases to consumers and small businesses — because of the role of second-hand sales in the transaction structures.

    When people borrow money on a car, they may have the option to return the car at the end of the loan period, in lieu of a final payment. If they exercise that option, the loan is discharged and the car company’s finance arm reclaims the vehicle.

    The car company then needs to sell the car to repay investors who have funded the initial loans through securitisation transactions.

    “The risk is market prices of the vehicles turn out to be substantially lower than was anticipated,” said Andreas Wilgen, head of consumer ABS at Fitch. “But they would need to drop a lot to have a noticeable impact on ABS transactions,” he added. The rating agency suggested the impact would not be “direct and immediate”.

    Volkswagen is the largest issuer of auto ABS in Europe. Four of the company’s European ABS deals that Fitch rates are exposed to “residual value risk” — meaning investors in the securities are potentially at risk if the underlying price of the cars falls sharply.

    The majority of the company’s ABS transactions do not take on “residual value” risk and therefore do not depend on resale at maturity, but only the ability of the borrower to service his or her debt.

    Securitisation deals are made up of huge numbers of contracts, and it is unclear how many cars may be affected by the emissions scandal.

    “Everyone in securitisation is currently asking how many cars in each transaction are affected,” Mr Wilgen said. He said the contracts differed significantly across different jurisdictions and regions. In the UK, a small proportion of borrowers choose to return the car at the end of the loan period, although “expectations have now changed”.

    “Clearly people spend a lot of time and money in ABS trying to get transactions remote from the solvency of the seller. That’s a pretty critical definition of what securitisation is,” said Andrew Dennis, a portfolio manager at Aberdeen Asset Management. He added that the market movements were “not cataclysmic but not comfortable”.

    Last week it emerged that the European Central Bank is suspending purchase of Volkswagen’s ABS as part of its purchase programme.

    The company was able to issue a Spanish ABS deal last week, despite the unfolding emissions scandal. Volkswagen said it did not intend to change its “frequent issuance pattern”.