Cooperation between the banks and other financial institutions in mortgages continues to expand. Harel Insurance Investments and Financial Services Ltd. (TASE: HARL) teamed with Bank Leumi (TASE: LUMI) in granting joint mortgages to the tune of billions of shekels, and Menorah Mivtachim Holdings Ltd. (TASE: MORA) bought a NIS 770 million mortgage portfolio from Mizrahi Tefahot Bank (TASE:MZTF). Now "Globes" has learned that, a few months ago, The Phoenix Holdings Ltd. (TASE: PHOE1;PHOE5)bought from Mizrahi Tefahot Bank the risk on a mortgage portfolio for a price in the hundreds of millions of shekels.
This deal is not like the previous ones, and is not an actual sale of mortgages. Phoenix, managed by CEO Eyal Lapidot, is not putting up capital for loans, but is relieving Mizrahi Tefahot, managed by CEO Eldad Fresher, of the risk of default on these loans.
The deal is through the purchase of structured products called credit linked notes (CLN), in which, as long as no credit event has taken place in the underlying asset (a mortgage portfolio in the present case), the principle and interest to which the investor in the security is entitled are not affected. If, however, a credit event takes place in the underlying asset, then the investor takes a hit, in accordance with the terms of the CLN. A credit event does not have to be bankruptcy or total default.
As far as the bank is concerned, the deal frees up capital, because its risk assets are reduced. This is similar to previous deals in which the bank sold exposure on its real estate loans portfolio to Psagot Investment House Ltd., and sold a portfolio of loans to diamond merchants to Meitav Dash.
These and other deals indicate that cooperation between Israel's banks and financial institutions is becoming closer.
This is a consequence of the fact that the institutions hold huge amounts of capital looking for investment, while the banking system, which has the expertise in extending and managing credit, seeks additional sources of capital in a world of ever tightening regulatory requirements.
Phoenix carried out the deal through its investment division, as part of a growing set of deals in non-marketable securities, with the aim of obtaining a return in a world of zero interest rates and rising prices for marketable securities.
Published by Globes [online], Israel business news - www.globes-online.com - on April 18, 2016
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