Securitization supply in 2023 was half what it was the year before, and the RMBS market was no exception. But over the past decade, Nomura has established itself as a leading player in the RMBS space, anticipating and adapting to a challenging market, while continuously offering creative solutions for their clients.
Proactive solutions
The firm has always had its finger on the market’s pulse, consistently early in identifying market trends, and directing balance sheet and resources swiftly. This responsiveness, combined with a strong focus on client advisory work to identify opportunities, were each massive assets throughout 2023. Nomura was quick to identify growth in the single family rental market as access to credit and affordability fell.
“We proactively reached out to clients and said: we think this is happening, you need more capital, and we're going to give it to you,” says Sanil Patel, MD, Global Head of Mortgage Structured Lending & Global Co-Head of Real Estate Finance. “That was one of the most significant ways we added value last year.”
There were several other examples. In the secondary market, Nomura anticipated a significant buildup in home equity and home price appreciation. In an environment hostile to refinancing a first lien mortgage, the bank was proactive in providing financing for clients to purchase second liens.
The market recognized Nomura as a bank unwilling to sit idle when the traditional market slowed down. “Even though the securitization market was constrained, it didn't stop us from trying to find solutions for clients who had collateral lines that were getting full,” says Patel. The bank worked hard to compile transactions, bring in investors and create liquidity for clients to tide them over in a hostile market.
“Our view was that if we could provide resources and support for clients when the wider market wasn’t fully functional we would benefit when conditions improved,” says Patel. “We're seeing that already today, with the volume that we're experiencing this year.”
Considerate trading approach
This theme of adding value also lies at the heart of Nomura’s win for secondary trading. Rather than try to be all things to all clients, the firm chooses to focus on specific products where it can offer exceptional depth. This focus spans the full range of mortgage related products, and gives Nomura an advantage during periods of volatility.
“In difficult circumstances it takes a little more creativity and thought to navigate trading situations”, says Brian Hargrave, MD, Global Head of Securitized Products Trading. “That’s something our combination of trading resources and research expertise allows us to do very well.”
For much of last year the secondary market was far from straightforward. Banks were faced with unique conditions that meant trading was not simply a matter of matching buyer and seller. “It required real insight and analysis on how to approach the market and use our balance sheet,” says Hargrave. “That kind of considered approach is characteristic of how we operate in RMBS and other areas like CLOs.”
Unique macro perspective
Fundamental to Nomura’s informed, analytical strategy is its research firepower. The firm has been at the cutting-edge of RMBS and agency MBS research for over a decade, building its business on detailed understanding of borrowers, structures, and segments. “We became known as the first call for a lot of smart investors,” says Paul Nikodem, MD, Head of US Fixed Income Research. “That's how we started and grew our team.”
Nomura has expanded to other areas, becoming one of the top research shops in markets including CLOs. The firm also stands out for the quality of its macro research, having correctly called many of the turns in inflation over the last couple of years. In an environment of rapid rate rises, surging inflation, and an uncertain economic outlook, Nomura’s ability to combine product expertise with macro insight is priceless.
“For example, when everyone was talking about recession risk we married that potential macro scenario with the implications for the RMBS sector,” says Nikodem. “We looked at potential public policy responses, how borrowers would be treated with loss mitigation, and how to benchmark default assumptions. We’ve built a reputation for thinking really hard about macro and rates scenarios, and how that ties into securitized products.”