LFP091 – Securitisation in the Fintech Age with Oliver Schimek CEO CrossLend

Much Fintech (online wealth managers qv) is just “putting lipstick on a pig” – digitising existing processes at oldskool prices. No-one can say this about CrossLend who securitise loans ~200,000 times cheaper than oldskool prices and securitise down to one single loan as small as €1,500 :-!

Furthermore oldskool securitisation has all too often been a metaphor for investment bankers taking a huge chunk of value out of a package of assets and slicing and dicing the residual into complex tranches that even bamboozle the ratings agencies. With catastrophic effects – 2008 & CDO-squareds qv.

CrossLend has grown to a team of around 45 people, based in Berlin and Luxembourg and work across Europe – Germany, Netherlands, Spain, UK, Norway, Finland.

Topics discussed on the show Include:

  • Oliver’s career to date from passing all the exams to be an airline pilot, through quantum mechanics through startups to Fintech
  • CrossLend’s original focus was overcoming the cross-border gap in Europe for P2P lending
  • in solving this problem they created a securitisation approach which actually turned out to be very interesting to a number of players and hence became the company’s focus as it is today
  • securitisation is basically taking some assets, putting them in a special-purpose vehicle (a company with this one sole purpose in life), and then (in essence) “selling shares” in this company to investors
  • securitising the furniture in the room we were in
  • originators create loans/deals with the customer but don’t necessarily want to be exposed to all the risk (eg due to balance sheet constraints) and thus use securitisation in order to decouple the amount of loans they originate from the size of the balance sheet they happen to have
  • investors eg pension funds or insurance companies, don’t have any branches/customers with which to create loans and thus get exposure much more simply via buying securitised loans
  • the securitiser creates the structure and provides a bridge, as it were, between originators and investors
  • challenges of this model:
    • if the securitiser extracts excessive value from the package
    • knowledge asymmetry between the parties involved (including ratings agencies)
    • costs for originators can be high ($millions) which means that one has to do a large volume of loans in order for it to be economic
  • securitisation in the digital age – same principles but immensely cheaper
  • the secret is standardisation and a fully-automated workflow – all the documents needed are created in an automated fashion
  • certain deal structures are set up (obviously at a non-trivial cost) but can then be replicated at a very low cost (eg down to double-figure Euros)
  • the smallest deal they securitised was €1,500 [cf around €150m for oldskool style]
  • means they can securitise even daily originations of a bank – so very flexible
  • Luxembourg has around 1,000 securitisation vehicles; CrossLend are one of the 30 licenced vehicles
  • CrossLend’s pipeline is €1.5-2billion
  • many many smaller banks in Europe are capital constrained and therefore this is a very interesting product for them to remove this constraint
  • CrossLend’s ambition is to build an exchange to connect originators and investors and thereby provide better liquidity
  • in re one strategic investor is the CME Group in Chicago
  • to do this they are building infrastructure and risk normalisation across Europe (apples and oranges problem)
  • market makers and liquidity
  • Oliver’s shoutout for:
    • talent
    • strategic investors
    • banks/investors

And much much more 🙂

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