...The ALM loss component reflects the modelled maturity, interest rate and FX mismatches. It is composed of the Asset Disposal Loss (stressed sale of assets), the Cash Flow Valuation (Net Present Value of the assets vs. the liabilities), the sale constraint and the credit given to the Negative Carry Factor. It is the main driver of the breakeven OC for Coventry, Yorkshire and Leeds. The high Asset Disposal Loss (between 8.7% and 12.3%) is due to large asset and liability maturity mismatches, with the WA life of assets being on average five years longer than bonds'. This creates the need for a stressed asset sale to meet timely payments on the bonds in case of pool enforcement. For Yorkshire, Leeds and Skipton, the significant excess spread is derived from the asset swap margin (above 2%) being well above that of the bonds swaps (below 1%). The differential is lower for Coventry (1% assets margin versus 0.6% bond margin) and null for Clydesdale (2.5% swap margin on assets and bond). Fitch...
