So are collecting loan payments made by banks part of their core business ? Clearly not as the issue of Mortgage Backed Securities (MBS) prove. That means the core business activity of a bank is making loans you can sell off to be collected by someone else !? This of course is not banking as defined by old school capitalism. It is fascismizing profits and socializing losses …..
So one of Canada’s big cable/mobile operators has decided that it is overly costly, maybe too risky and certainly not profitable enough to collect the bills from their customers so they plan on selling off customer receivables, probably as AAA debt using the right rating agency!? Maybe the sub-prime or uncollectibles are just a small part of the equity traunch! Sound familiar ? Who would even think of buying this stuff ? Clearly someone who figures they can sell it to someone else before it is too late!
Rogers Communications Inc., has, for the first time in its history, joined the ranks of Canadian companies to securitize part of its trade receivables.
Details of some of the aspects of the company’s plans were detailed in its recently released fourth quarter financial statements, in the documentation for its recent US$1-billion borrowing and in the accompanying ratings reports on that two-tranche financing. But some parts of accounts receivable securitization program will remain secret: there are no plans to name the conduit run by a financial institution that will purchase the trade receivables and on-sell them to third party investors.
Is this just out sourcing none core business activity ? How might it work ? You get as many mobile/cable customers as you can and pump up your customer numbers and show all kinds of increased customer revenue. That drives your stock value and bonuses higher. It works until you cannot collect it all because your customers are students, deadbeats or simply indebted consumers with no intention or capability of paying !? But wait you sold these accounts off to some smart investor who has factored in that he needs to buy it at a 30% haircut and can sell it at a 25% haircut thus making 5% on a billion! So sure you can put this all off by securitizing the debt for a few years but ultimately shit happens for both the company and the guys you sold the receivables to … well maybe!?
Will it once again be the debtor who gets away with reduced consequences and the owners of the “public” company (owned by your pension plan) that get screwed after the big bonuses get paid out to executives and hedge funds for the increased customer and revenue numbers which were never real in the first place … just securitized !?