Leveraged Finance, like a bad Rocky Movie, is making a comeback

  “This is the world of smart securitisation,” said Geoff Smailes, managing director of global credit solutions at BarCap. “It’s not securitisation for leverage and arbitrage purposes any more. This is all about restructuring portfolios of assets to achieve risk, capital and funding efficiency in a transparent and less complex way.”

Just when you thought it was safe to return to the water, like a bad Jaws or Rocky remake, LevFin is ready for its comeback.

These new mechanisms are in some respects similar to the discredited structured products, which were widely blamed for fuelling the financial crisis. But the schemes’ backers argue there are two significant differences. First, they involve the securitisation of banks’ existing assets, rather than of new lending. Second, bankers argue that the new products do not disguise the transfer of risk.

Over at 85 Broad, the Boys in the Expensive Suits, are preparing their own cross dressing rival. Its carrys the name, Aset Protection Scheme, because, well, this story was released before they had a chance to change it to a spiffier term.

Separately, Goldman is working on what bankers said was a private-sector version of the UK government’s asset protection scheme. The goal would be similar – to reduce the capital that would need to be held against the assets – although Goldman has yet to find a balance between the risks and rewards that would be attractive to investors. Investment banks do not believe they can compete with the government-sponsored APS, mainly due to scale. RBS and Lloyds between them are putting £560bn ($914bn) into the scheme. Under Goldman’s idea, it would sell an insurance product to a bank with a toxic portfolio, effectively shifting the risk of the underlying assets off the balance sheet. The insurance would require far less capital to be carried against it than the original assets. Deutsche Bank engineered a comparable structure to facilitate the dismantling of risk at failed insurer AIG, although bankers close to that transaction said without government involvement the cost of such a structure would be commercially unfeasible.