Citi has launched a new global trade initiative aimed at helping trade banks more efficiently grow their trade portfolios.
Known as the multi-bank global trade programme, it was launched at the high-profile annual Sibos conference for financial services, held in Amsterdam in late October.

The new scheme offers a group of participating banks the ability to originate and fund trade finance assets more efficiently through a structured issuance of asset-backed securities and commercial paper. Citi is the lead arranger of this initiative.
It was set up to address three main objectives or challenges facing the market; capital management, liquidity and credit relief. Furthermore with the increased industry focus on Basel II and Basel III and the impact on capital requirements, Citi’s scheme aims to provide the industry with alternative solutions to help banks make better use of their capital.

John Ahearn, global head of trade at Citi’s global transaction services comments: “This multi-bank global trade programme is another way that Citi is supporting the global trade market and providing ways trade banks can grow their trade finance portfolio in an efficient and effective way.”

Citi had previously launched trade asset securitisations before the crisis, but this initiative differs from such schemes in that it is compatible with new accountancy rules established in the US, and currently being set up in Europe, which deal with the notion of ‘true sale’ and which entity has control of the assets.

Although the scheme has been established by Citi as the lead arranger, the bank will act as one of the partner banks putting their assets into the pool along will other banks. The bank is in the process of inviting other banks to be co-arrangers.
Citi hopes the programme will benefit the broader industry, by seeking to establish an origination and funding platform for trade banks with complementary market positions, creating a diversified and granular pool of funded trade assets.
Through creating a diversified pool, it lowers the aggregate risk of the pool of assets.

Emmeline Wexer, global head of Citi’s trade asset advisory, within Citi’s global transaction services, explains further: “Each bank may rationalise its participation differently, such as a greater need for capital relief versus funding and liquidity.
“However, collaboration among the participating banks, sharing a common goal of creating the most efficient funding platform to support the financing of global trade flows, is ultimately the most important ingredient to achieve success.”

The launch of the multi-bank scheme comes at a time when the reputation of the securitisation market is still recovering after many saw the financial tool as one of the causes for the financial crisis.

However, this securitisation is said to differ from others due to the nature of the underlying asset.

“The assets going into the pool are short-term funded trade assets with tenors of one year or less,” Wexer tells GTR.

“This asset class has been shown to be a low risk asset class. We believe the underlying strength of this asset class is what is critical here – what will make it successful and differentiate it from standard securitisations.”

Market reaction to the platform has been generally positive, according to the bank.

Wexer remarks: “The really good conversations that we have are when we meet both the head of trade and the head of securitisation.

“Often the banks are already thinking they need to develop a securitisation solution, and when we turn up on their doorstep, they say, ‘this is better than what we could accomplish on our own’.

“For the trade team this is a great solution for them to better actively manage the balance sheet.”

Some trade banks do not plan to participate in the programme as they are still in asset aggregation mode with strong levels of liquidity and no motivation to sell assets.

“Some banks are in growth mode and happy to have every asset they can get now – and some say ‘talk to me in a year or two when my portfolio gets really big and when I reach my growth targets’,” Wexer explains to GTR.