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NewERA sues to stop bank securitisations

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By Wiseman Khuzwayo.

The New Economic Rights Alliance (NewERA) is making an urgent application in the South Gauteng High Court today seeking to interdict the big four banks from securitising the loans of their clients.

NewERA says the interdict, if granted, will bring relief to more than 1 000 consumers who face losing their homes, cars and other assets due to the non-payment of their debt to banks this festive season.

NewERA describes itself as a community of people who are seeking transparency in the banking and corporate finance sectors.

Chairman Scott Cundill is the founder and chief executive of Majestic Interactive, a software marketing platform that claims to generate database response rates of over 1 000 percent above the industry average.

In August NewERA issued summonses to Absa, FNB, Nedbank and Standard Bank, as well as the Reserve Bank, in which it sought a full investigation of the banking system.

Among the 65 respondents are special purpose vehicles (SPVs). NewERA says the banks use these entities as “conduits” to sell off bundles of loans, which are then traded on various bond markets and stock exchanges in a process known as securitisation.

The securitisation of “toxic assets” by Wall Street bank Lehman Brothers and others caused the subprime meltdown in the US, which in turn led to the 2008 global financial crisis. Subprime loans were mortgages granted without a deposit to clients who had poor or non-existent credit histories.

According to the Banking Association of SA website, local banks securitise loans worth about R30 billion a month.

NewERA says banks bundle these loans together using an SPV and sell them to third party investors via stock and bond markets. These investors include pension funds and some bankrupt municipalities.

NewERA says banks are not upfront on this issue because once a bank securitises a loan, it loses all rights to the asset.

Nedbank, Standard Bank and FNB said they would defend the court action.

FNB said this remained an industry matter and referred Business Report to the banking association. Basa was unable to comment yesterday.

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