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Figsco answers the fixed income question of the hour

By Owen Sanderson
26 Jun 2014

Since Goldman’s Figsco (Fixed Income Global Structured Covered Obligation) trade hit the screen, capital markets commentators, GlobalCapital included, have been scratching heads and stroking beards about what it actually is.

Covered bond people have been adamant it is NOT a covered bond (only a covered obligation) but aren’t sure what else it might be. Repo traders think it might be a repo. To structured finance people, it looks a bit like a collateralised bond obligation (the nomenclature strategy is certainly similar) with a monoline wrap.

What is important, though, is the problem it tries to solve. Investment banks have plenty of salespeople and traders, but precious little inventory. Holding assets is expensive, in funding and capital terms. Originating and warehousing assets from more challenging markets even more so.

Managing collateral, choosing which assets to repo and where, for how much and with whom, has become spectacularly complicated, spawning a booming IT industry, and the upgrade of collateral managers to the front office.

But the basic problem is that is does not bring in the buyside. Tweaking and optimising the collateral plumbing of the financial system helps, a bit, but it doesn’t move much liquidity from investors, who are drowning in it, to the parts of the investment banks that can’t get enough.

The Goldman Figsco, however, creates a whole new pipeline. It gives the bond investors and Mitsui Sumitomo Insurance, which is wrapping the deal, a way to plug their cash or risk appetite directly into Goldman’s trading and investment banking assets.

Instead of the labrynth of individual trades required to fund a motley collection of aircraft loans, EM bonds, ABS, and, really, anything Goldman wishes to fund, Figsco sets up a giant, permanent, warehouse.

While others have spent their time bemoaning the new fixed income environment, Goldman’s structurers have been hard at work solving it. Who cares if it’s not a covered bond — it’s the future.

By Owen Sanderson
26 Jun 2014