RBS 2008 Annual Report Download - page 134

133
RBS Group Annual Report and Accounts 2008
At origination, the reference assets of the high grade structures
predominantly comprised investment grade tranches of sub-prime
residential mortgage securitisations along with other senior tranches of
some combination of ABS assets, including prime and Alt-A RMBS,
CMBS, trust preferred ABS, student loan backed ABS and CDO assets.
The underlying assets referenced by these super senior securities are
primarily more recent vintages (the year the underlying loan was
originated), with 48% being 2007. Generally, loans with more recent
vintages carry greater discounts, reflecting the market perception of
greater default levels than on earlier loan vintages.
The fair value of these assets has fallen significantly during the period,
representing the decline in performance in the underlying reference
assets and the lack of an active market for the securities. Some of
the Group’s holdings (£3.4 billion) have been hedged with monoline
counterparties (see page 135).
Mezzanine super senior CDOs
The tranches of CDOs have suffered a greater level of price decline
than high grade tranches due to the relative credit quality of the
underlying assets. As shown in the table below, the majority of the
Group’s mezzanine super senior net exposures represent securities
retained in CDO structures originated by the Group.
High grade super senior exposures
As shown in the table below, the majority of the Group’s high grade super senior exposures, represent securities retained in CDO structures
originated by the Group.
Gross
exposure
£m
Group originated deals 3,565
Third party structures 155
3,720
Gross
exposure
£m
Group originated deals 6,776
Third party structures 897
7,673