Over the last 12 months the apparently unstoppable momentum of the global securitisation industry has suffered a major jolt. The immediate cause lay in the sub-prime segment of the US home equity market, but the ripples have spread out to affect other jurisdictions and market sectors. The US sub-prime housing meltdown certainly caused uproar in both the securitisation and equity markets, as sub-prime lenders succumbed to margin calls and saw lines of credit evaporate. As a result issuance has fa

On May 14, the Lok Sabha (India’s lower house of Parliament) passed the Securities Contracts (Regulation) Amendment Bill 2007, which provides the legal framework for listing and trading of pass-through certificates (PTCs). The Bill now has to be ratified by the Rajya Sabha (upper house) and the President. Under previous regulations, instruments backed by assets and issued by an SPV (the purchaser of assets from the originator for legal separation and to insulate investors from financial risk ass

In the last few weeks, the Australian securitisation market has turned sizzling hot, with almost A$14bn (US$11.5bn) of MBS paper being sold globally. Demand is so overwhelming that spreads are expected to tighten to record levels and upcoming issue sizes consequently expand to an unprecedented degree. “We are looking at a gradual compression in spreads being paid by Aussie MBS originators,” said Stephen Maher, head of credit research at Macquarie Bank. “There is no fundamental credit reason for

While the troubles surrounding the US ABS market and the sub-prime mortgage sector were well documented in the mass media, the residual or spillover effect in the derivative CDO market was less talked. The largest single buyer of subordinate US ABS bonds, according to Fitch data are CDO asset managers who are accorded with purchasing 70% of subordinate ABS bonds. These lower-rated, higher-spread ABS tranches are ideal paper to make CDO deal creation economically viable. But, the sector has begun

The financial guarantor industry is one beneficiary from the US sub-prime market's current problems. As spreads have widened out, the guarantors have found sub-prime lenders rather keen to renew their acquaintance with the monoline product. "The sub-prime meltdown is the big event of the year," said Stanislas Rouyer, senior vice president in the financial institutions group at Moody's. "The guarantors had been pushed out of that market, so this is a big opportunity for them, and a reminder to th

The UK credit card market, once one of the most profitable in the world, has certainly seen better days. The sector has seen a 43% fall in profits since 2005, according to Lafferty Group’s global credit card profit pool index. The research house links those reduced profits to the large rise in bad debts and impairments amongst consumers, as well as the restriction of penalty fees on late payments. Several observers are positive about the sector's prospects. "Credit performance in the credit card

Since the mid 1990s the taxable profit of UK companies and SPVs has been calculated on accounting profit. In the case of SPVs, up to the end of 2004 this corresponded to the surplus of cash held by SPVs. The corporation tax regime governing debt and derivatives is accounts-based, and according to accounting firm Deloitte, following the introduction of international accounting standards (IFRS) or modified UK GAAP there were concerns about potentially large-scale adverse accounting volatility, par

European bankers are always keen to reject the term sub-prime to describe their non-conforming deals. But as in the US, banks operating in the UK have been quick to embrace a business model based on quick upfront profits and fast portfolio turnover. In its Financial Stability Report of April this year, the Bank of England cited among various sources of vulnerability for the UK financial system the reliance of banks and other lenders on sustained market liquidity, both to allow them to distribute

What a difference 12 months make. The years 2006 and 2007 have proven to be polar opposites in the state of the US home equity ABS market. In 2006, spreads on new issue ABS were tight and entrenched at near-record levels across the capital structure. The exuberance was evident as new deals were eagerly purchased outright by investors or, in many cases, taken up by the insatiable CDO market to be used as collateral for more esoteric deals. Fast forward to 2007, and that has all changed. Issuance