UniCredit SpA is exploring a potential risk transfer deal to hedge €1 billion ($1.1 billion) in German home loans. The Milan-based lender, which is set to take control of Germany’s Commerzbank AG, is assessing investor appetite for an unfunded credit protection. Significant risk transfers on residential mortgages are rare, with Spain’s BBVA SA completing two synthetic securitizations linked to home loans earlier this year. German house prices have been recovering from a slump since late 2024, but the pace of the upturn has slowed in recent quarters and the market outlook is uncertain given rising interest rates. Banks have also been tightening conditions on mortgage lending.
Synthetic, or unfunded, SRTs involve insurers agreeing to cover some of the loan losses in exchange for a coupon, rather than investors paying cash up front. UniCredit has become a prolific issuer of SRTs, using the trades to free up capital that it recycles back into its loan origination business. Italy’s biggest lender has gained relief equivalent to 82 basis points of its common equity tier 1 ratio, according to Credit Sights Inc. estimates. SRT deals continue to be churned out by banks, mostly in Europe and North America, even as risk premiums in wider financial markets deteriorate.
UniCredit is also discussing a potential SRT tied to the equivalent of around €1 billion in loans to small and mid-size enterprises in the Czech Republic. Separately, KBC Group NV, which operates one of the largest banks in the central European country, is also working on an SRT tied to over €2 billion of company loans. All three potential deals are still subject to discussions with investors so terms may vary during the sales process.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing