Real Estate Rentals Securitization and Bank Analyzer.

Dear,

This week, several Financial Institutions announced that they are offering a new securitization program of Real Estate Rental contracts.

http://online.wsj.com/article/SB10001424127887324170004578638093802889384.html

Securitization is a very promising business for the next years; the Financial System is suffering huge capitalization difficulties, and removing Risk from their Balance Sheets, by securitizing Assets, is an excellent way of improving the Banks’ Capital Ratios.

The market opportunities are abundant, and as the above article shows, include new concepts in securitization.

Last months I've been collaborating with the Architects of TXS, responsible of the development of Funding Management, a critical component of the End to End Securitization and Syndication processes in SAP http://www.txs.de/txs-en.aspx

The outcome of this collaboration is very promising, as offering an End to End Integrated solutions for Securitization in SAP is a very significant competitive advantage (increased visibility, lower Total Cost of Ownership, etc.).

Today, I’d like to share with you how to manage an End to End Securitization process of Real Estate Rental contracts with SAP, just as the example described in the above article.

Managing a Securitization process of Real Estate Renting contracts in SAP is quite natural; let me give you a brief description of the process.

SAP has a great solution for Real Estate renting management, as part of the ECC Financial Accounting components (Real Estate Management & Flexible Real Estate Management). The main object is the Real Estate Contract which contains the conditions for generating the expected cash-flows of the Asset.

Replicating the Real Estate contract as a Financial Transaction of the Bank Analyzer SDL is supported by the Bank Analyzer architecture, either by using the ETL or developing specific services.

The postings (payments, renewals, etc.) in the Renting Contract will have to be transferred as Business Transactions; once we include the other Primary Objects (Business Partners, Collaterals, etc.) will have the complete scenario modeled in Bank Analyzer.

Funding Management 2.0 has also a quite open architecture, and it’s feasible to develop the necessary interfaces with ECC- Real Estate and Bank Analyzer for supporting the payment distribution functionalities (including waterfall processes, provisions generation, etc.) from the Renting Contracts Pool to the Especial Purpose Vehicle.

Finally; Issuing, Trading and managing the Payment obligations of the Securities is very well supported by the Treasury and Risk Management Component of SAP-ECC.

Additionally managing Real Estate contracts is a mature industry for SAP with a very significant market share, those are business facts that should help to position SAP Banking components for securitizing those contracts.

In addition to all the above, there’s a very important concern on the development of the Securitization Industry. As the article highlights, after the Financial Crisis there’s a relevant lack of trust on the transparency of the Securitization Processes. And for offering transparency and control, there’s no better value proposition than the integrated architecture of SAP.

By the way, Securitization will play a very important Role in the new Financial System driven by Efficient Capital Management. But it will a new model of Securitization, we’ll talk about it in a future post.

Once again, Disclosure is the word.

Looking forward to read your opinions.

K. Regards,

Ferran.