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March 15, 2019  

RBC Adds Thrust to Repurchase Campaign

RBC is further increasing the volume of repurchase agreements that it writes against mortgage products, and possibly other assets.

Sources said RBC has become one of the more active players in the sector in recent months, in large part by emphasizing contracts tied to loans that don’t meet the Consumer Financial Protection Bureau’s “qualified-mortgage” guidelines. Now, the bank has hired market veteran Olivier D’Meza to lead and expand the effort from New York.

The assignment marks D’Meza’s second stint at RBC. He initially worked at the bank from 2008 to 2015 as head of a proprietary trading desk that dealt in a mix of structured products — a unit that shut down with the implementation of the Dodd-Frank Act’s Volcker Rule. Since then, D’Meza was working at investment firm Pine River Capital with a focus on mortgage bonds and online personal-loan portfolios. His earlier employers include UBS and Credit Suisse.

D’Meza appears to be writing contracts against both loans and bonds at RBC. It’s unclear who previously ran the operation, or how the group’s chain of command works. Managing director Kumarjit Bhattacharyya evidently is playing a key role as well, dovetailing with his work in securities lending. Bhattacharyya arrived in 2012 from Ally Financial.

The return of D’Meza is seen as a clear signal that RBC wants to step up its activity. That likely would include a more comprehensive lineup of mortgage-focused repurchase agreements, one source said, and possibly contracts referencing personal loans and other assets. The source added that D’Meza brings with him a network of industry contacts and familiarity with all phases of the loan origination and securitization processes. “He’s done deal structuring, he knows every asset in the space and he knows all the tricks,” he said.

So-called repo lines allow counterparties to take positions in various assets by purchasing them from dealers that agree to buy back the holdings at pre-arranged prices. The contracts, which typically require cash downpayments, roll over every 1-3 months with the counterparties using cashflows from the underlying investments to pay interest.

The repo market has been growing, in turn aiding expansion efforts at bond issuers. Banks, including RBC, also view the contracts as an avenue to steer business to their bond-underwriting businesses.

RBC was the 8th most active bookrunner for U.S. asset-backed securities in 2018, but didn’t lead any mortgage deals, according to Asset-Backed Alert’s ABS Database. The bank, whose competitors include Jefferies and Nomura, sees itself as a strong candidate to offer repurchase financing because it carries short-term counterparty ratings of P-1/A-1+ and long-term grades of Aa2/AA- from Moody’s and S&P.