U.K. thrifts have started to take a closer look at using credit derivatives to bolster their investment portfolios. Leeds & Holbeck Building Society, Skipton Building Society and Britannia Building Society are all keeping a close eye on the instruments, according to officials at the firms.
Ebo Coleman, in the securitization group at BNP Paribas in London, said thrifts are starting to look at a much wider array of investment products to boost yields, and credit derivatives are just one example of that. The hunt was prompted by low yields on residential-mortgage backed securities, the investment product of choice for U.K. building societies.
Nationwide, however, which is the largest thrift with some GBP83 billion (USD148 billion) in assets is widely thought to be the only thrift to have taken advantage of a law change in 2000 that allows the U.K.'s thrifts, known as building societies, to use credit derivatives.
Leeds & Holbeck, with GBP5.6 billion in assets, plans to research this area in greater detail next year, according to Paul Riley, treasurer in Leeds. "If there is any use for credit derivatives it is as an investment," he added.
Ashley Lillie, money market manager at Skipton Building Society with GBP7.6 billion in assets, said, "It's a logical next step if you want to go a bit further down the curve into RMBS." Skipton, however, has no immediate plans because its current internal policy only allows derivatives for hedging, but Lillie added policy is reviewed regularly. "It's a question of getting comfortable with the instruments," noted one thrift official, "and it also depends on the returns."
