Dear,
As you could read here, the world is facing an unsustainable, un-payable debt.
This debt is spread as Financial Assets, amongst the balance sheets of corporations, investment funds, etc
In my opinion, the Fair Value of these assets is far below their current book value, and the recognition of their real value will be a huge bubble burst that will drag the value of many other assets down.
On the other hand, crisis are also opportunities, and I’d like to talk today about an economic activity which is going to experience a significant growth with the Financial Crisis, and it’s also an opportunity for SAP Banking.
I mentioned in a previous post that securitization activities are going to grow, but it’s going to be different than the securitization business we saw before the starting of the Financial Crisis.
At the time, we were in a booming economy, and securitization was mainly a commercial driven activity. For instance, remember the “toxic” synthetic securitizations, purely financial bets, not supported by any real economic asset.
But, let’s come back to the problem of the global debt. Paying the debt will require making this very toxic asset attractive to investors (of course after suffering a necessary hair-cut), and securitization is going to play a very important role on it.
This is going to be a very different securitization, not commercially, but capital management driven, with new requirements of control and disclosure. In the new model Capital will be recognized as scarce; and managing it efficiently, the priority.
The proposal of securitizating assets is not new for poor (capital scarce) economies, look what the International Monetary Fund said about it 12 years ago.
And look what the International Monetary Fund, European Central Band and European Commission (main lenders of Greece), are requesting to the extremely indebted country, in exchange of a new package of financial assistance.
Please, read carefully the articles above, you will find the key words there; Risk Mitigation, Management, Control...
Nothing to do with the old securitization model, represented by the example of the subprime CDOs., massively traded with no control on the risk or the fair value of their underline, in liquidity flooded markets.
Once again, the Financial Crisis is driven the systemic change, from a business model based in volume to a business model based in efficient capital management.
Greece is a very good example, it help us to understand the new paradigm. Detailed control of the assets performance, in this scenario Information management and control is the key.
What the troika is proposing is the securitization of Greek Real Estate assets under the control of an external institution (controlled by the lenders).
Those lenders are also going to face financial difficulties after the crash, and they will need investors allocating capital; and in a scenario of scarcity, investors will require guarantees of the efficient management of the acquired assets.
We discussed here some months ago how to manage efficiently this process with SAP Banking components. (ECC-GL Real Estate, Treasury and Risk and Bank Analyzer)
SAP has proved for decades to be the leader in detailed control and performance measurement of assets in many industries. Now it’s the time of leveraging those functionalities to the new requirements of the Financial System.
I have no doubt that it has the capacity of making it happen.
Looking forward to read your opinions.
K. Regards,
Ferran.
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