IFR Securitisation Roundtable 2015
IFR’s Securitisation Roundtable – entitled “The Great European Securitisation Debate” – took place on May 28. Even though the general market at that point had turned volatile and Bund yields had been whipsawing, it was long before Greece went into arrears with the IMF and Greeks had voted against the latest austerity package. So the following discussion needs to be read with this in mind.
- Read a digital version of the Roundtable Report here.
- View the two highlights videos below
The Roundtable was designed principally to evaluate the state of play of the European ABS market from a thematic perspective including the important and ongoing process of re-regulation.
From a macro perspective, industry participants were frank in their assessment of the market: rehabilitating it from its pariah state and its links to toxicity is a work in progress though a lot of progress has been made. The performance of pre-financial crisis European ABS/MBS played its part in this – it wasn’t all doom and devastation – but it’s fair to say the European Commission and the public policy machine has been largely responsible for bringing securitisation back to the table and allowing bankers once again to admit in polite company to working in the area.
But despite the new-found regulatory zeal for securitisation, the fact remains that the asset class continues to be subject to discriminatory capital and liquidity treatment that undermines its economics and skews the equation towards covered bonds away from even prime ABS products. Moves to level the playing field are underway, but are underwhelming, in the minds of ABS professionals.
From a flow perspective, the European market continues to see negative net supply despite a resurgence in UK issuance. Europe is lagging; the ECB’s ABS Purchase Programme has broadly been irrelevant in the grand scheme of things.
A key test for the market will be its emergence as a channel for risk transfer rather than funding. Given where we are on European monetary stimulus, a host of alternative funding sources provides superior outcomes so the market’s ability to recreate itself as a risk transfer and regulatory capital mitigation tool needs to move to the fore and the market needs to see more full capital-structure sales. This will facilitate what one participant called raw material disposal through the ABS market.
What else does the market need? The emergence of specialty finance company issuers – equipment leasing companies, credit funds, peer-to-peer lenders, non-conforming mortgage lenders etc – will be key. Issuers that need securitisation to operate their business models will certainly help put the market in Europe on a more solid footing.
As will moves to instil better standards of data and transparency; regulatory initiatives to promote the notion of high-quality securitisation (notwithstanding this may have a flip side); more standardisation; a bigger universe of qualified investors; and inclusion in bond indices. The rating agencies have overhauled their methodologies too, and this will be to the market’s advantage.
And while non-bank buyers that have acquired assets from the banks and are optimising their positions through securitisation will create some flow, the European economy has been moribund and some level of sustainable growth is long overdue.