Fitch: Brazil's Securitization Trustee Count Set to Fall

NEW YORK--(BUSINESS WIRE)-- Brazil's securitization market slowdown, high operating costs and low profitability will push smaller securitization trustee companies to exit the business or merge with larger competitors, Fitch Ratings says. This would further concentrate the securitization market.

We expect smaller, lower capitalized securitization companies, which rely on nonrecurring structuring fees to cover ongoing operating expenses, to feel the most pressure. Securitization companies that only act as third-party service providers usually generate sizeable structuring fees at issuance and marginal recurring trustee service fees over the life of the deal.

Merging with larger competitors may be difficult for many smaller securitization companies, as the market is already highly concentrated. Three of the approximately 30 companies in the market account for a nearly 60% market share in Brazil's mortgage-backed securities, certificados de recebiveis issuances (CRIs). We believe that inherent operating risk in some CRI issuances might increase if smaller firms cannot properly maintain personnel and systems to control and monitor existing issuances.

Securitization companies act as issuer trustees for CRIs. Since 2010, CRI issuance has exploded, reaching BRL60 billion and 1% of Brazil's GDP. The number of securitization companies has also expanded dramatically as the sector has few barriers to entry. Competition among securitization companies grew and many aggressively priced trustee services, lowering profitability.

Brazil's prolonged economic recession halted residential mortgage lending growth. And, in 2015, retail banks were stripped of regulatory incentives to use their balance sheets for commercial lending via CRIs. As a result, structured product issuance has fallen by 47% since the beginning of this year.

Some companies diversified trustee services beyond MBS to agribusiness loan-backed securitization issuances, which have also seen heightened competition.

The above article originally appeared as a post on the Fitch Wire credit market commentary page. The original article can be accessed at www.fitchratings.com. All opinions expressed are those of Fitch Ratings.

Related Research

Brazilian Securitization Companies (New Business Limitations and Continuity in Risk)

https://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=881702

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View source version on businesswire.com: http://www.businesswire.com/news/home/20160607006246/en/

Fitch Ratings
Jayme Bartling
Senior Director
Latin American Structured Finance
+55 11 4504-2602
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Rob Rowan
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Fitch Wire
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Source: Fitch Ratings

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