RBS 2009 Annual Report Download - page 193

Business review
Risk, capital and liquidity management
191RBS Group Annual Report and Accounts 2009
Commercial mortgage-backed securities (CMBS)
CMBS are securities that are secured by mortgage loans on commercial
land and buildings. The securities are structured in the same way as
RMBS but typically the underlying assets referenced will be of greater
individual value. The performance of the securities is highly dependent
upon the sector of commercial property referenced and the
geographical region.
The Group accumulated CMBS for the purpose of securitisation and
secondary trading. The largest holding of CMBS arose as a result of the
Group’s purchase of senior tranches in mezzanine and high grade
CMBS structures from third parties. These securities are predominantly
hedged with monoline insurers. As a result, the Group’s risk is limited to
the counterparty credit risk exposure to the hedge. The Group also
holds CMBS arising from securitisations of European commercial
mortgages it originated.
Key points
•CMBS carrying values declined due to foreign exchange movements driven by the strengthening of sterling against the US dollar and the euro, as
well as modest pay downs, sales and write-downs. This was more than off-set by revised asset classifications, including US federal agency issued
ABS, previously classified as US government debt securities.
•There were no material acquisitions of CMBS by the Group in 2009. Where exposures within CMBS types have increased, this was due to a
change of sector exposure from permitted substitutions, particularly within US structures, and revised sector classifications.
The following table shows the composition of the Group’s CMBS portfolios (carrying value) by geography and sector.
2009 2008
Other Other
US UK Europe RoW Total US UK Europe RoW Total
£m £m £m £m £m £m £m £m £m £m
US federal agency 1,438 — — — 1,438 649 — — — 649
Office 557 696 231 — 1,484 428 915 402 — 1,745
Retail 507 112 64 33 716 295 43 2 49 389
Mixed use 28 145 558 10 741 20 99 975 45 1,139
Multi-family 221 130 26 — 377 159 143 — — 302
Hotel 166 36 — — 202 40 35 — — 75
Healthcare 55 90 24 — 169 24 13 81 — 118
Other 265 96 21 — 382 530 147 186 47 910
3,237 1,305 924 43 5,509 2,145 1,395 1,646 141 5,327