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Citi and Santander have launched the first multibank securitisation of trade finance assets, worth a total of US$1bn.

The loans have been bundled together and resold as a three-year security to a range of institutional investors. The assets in question were sourced on a 50-50 basis by the participating banks, with Morgan Stanley joining as structuring agent and joint bookrunner.

Fabio Fagundes, the director leading Santander’s project team, tells GTR that the loans in the package have an average value of US$10mn and tenor of 47 days. Given that the package has been sold on a three-year basis, the banks will replenish the loans up until its maturity.

The initiative – which has been in the works for three years and is called Trade Maps – is a variation on BNP Paribas’ Lighthouse platform, launched earlier this year. The French bank uses the platform to securitise commodity finance assets, but on a longer-term than Trade Maps.

Both models are examples of the drive within the trade finance business to free up balance sheets ahead of Basel III regulations, which require banks to hold more liquidity. It’s thought that more platforms such as these will see the light of day over the coming years and collaboration among banks may become more frequent.

Citi and Santander hope to make an issuance twice a year and the pair is keen to invite other banks to join. Neither is obliged to participate in issuances with the other.

“Trade finance is very collaborative,” Jorge Tapia, global head of trade, commodity and export finance at Santander tells GTR. “You see it in the ICC, WTO… I don’t know why, but it’s always being a very collaborative industry. Even from the simplest instrument, an LC, you have a bank on each side. That’s a very simple transaction – it’s in the DNA of the industry.”

There is still trepidation among the investor community around securitised assets. In the run up to the 2008 financial crisis, the securitised collateralised debt obligation (CDO) market had grown to hundreds of billions of dollars. These mortgage-backed assets are said to have incentivised lenders to make sub-prime loans and have been described as “the engine that powered the mortgage supply chain”. In other words, they’re blamed in many quarters for starting the crash.

However, the banks involved in Trade Maps say that with an average maturity of 47 days, the incentive to put a non-performing loan in the bundle doesn’t exist, since there is virtually no time to turn it around (not to mention the fact that investors will find out within a matter of weeks, rather than years).

Further qualifying criteria are that loans must be plain vanilla trade finance (basic export or import), AAA-rated and there are limits on sector and country.

In terms of visibility, the terms of a trade finance loan usually contain a clause agreeing to permit the bank to sell the debt – or a portion of it – to another financier. The methodology used is usually syndication, but the demand among institutional investors to tap the steady yields of low-risk trade finance transactions has seen it being more frequently used in that market too.