The last great post-crisis credit trade

I wrote here about last week’s Sohn conference and the many stock and market tips that came out of it. I didn’t cover them all in the first column, so this is just a quick post to run you through some of the rest.

The first speaker, Julian Sinclair, tipped Tata Motors. That was interesting if not particularly scintillating. But his second tip was a gripper. There is, he said, “one last great post-crisis credit trade.” That perked the room up. It is ‘shared appreciation mortgages’, or SAMs.

We’ve written about these before from a different angle, but older readers will remember how, back in the early 1990s, a time when house prices hadn’t been booming, banks offered and people accepted deals by which they borrowed money against their houses and paid no interest on the loans. Instead, they agreed to share any capital gains made on sale with the bank in varying ratios.

At the time, this seemed like a high risk deal for the banks and a low risk deal for the property owners. Now that isn’t so much the case – SAMs have turned out to be a great deal for the banks and a really rubbish one for the borrowers.

What’s more, there are still SAMs knocking around in securitised form, offering, says Sinclair, pretty fabulous potential returns. The bonds are so low risk that he reckons they should be yielding 4-5%. Instead they are yielding more like 9.5%.

I reckon there is more risk in this than he thinks – the politics of forcing someone to hand over 50%-plus of the new value of their home on its sale won’t work for the PR departments of our increasingly despised retail banks – but I still think he makes a good investment case for looking at SAMs. I just don’t know how retail investors get into them. Anyone else?