BOCA RATON, FLA. - If the pending regulatory and accounting changes have ABCP market participants worried, they did not show their concern at the opening panel
of Information Management Network's ABCP and SIVs conference held last Tuesday. "I'd like to say thanks to the [Securities & Exchange Commission] for presenting changes that will keep us all employed for a long time," quipped Mayer Brown Rowe & Maw Partner Carol Hitselberger.
Despite conference attendee concern over the future implementation of BASEL II, FIN 46R, FASB 140 and IAS 39, past performance suggests that the conduit market's creativity would allow it to overcome the hurdles posed by these accounting and regulatory changes.
Noting the developments seen in recent years, including fully and partially supported multi-seller vehicles and extendible mortgage warehousing facilities restructured for regulatory compliance concerns, "this market has done extremely well," added panel moderator, Banc of America Securities Managing Director Stephen Austen.
Of course this wouldn't be a well-rounded gathering without buyside complaints over the perpetually shrinking returns offered by the market. "There is no more spread," said TIAA-CREF Director Joseph Rolston. "There used to be a premium for taking a leap of faith in a deal's structure. What's in it for the investor? It will take a blow up to correct."
David Fink, head of conduit securitization at Calyon, agreed that the asset class had seen spread compression, but cautioned the investor community to be careful what they wish for. "We have to be careful not to decrease the structural enhancements," he warned.
If a blow up is to come, due to relaxed structures or otherwise, the trigger will be the health of the consumer, given the newfound correlation of the ABCP market to consumer payments. "Should the consumer shut down his or her balance sheet, single seller [conduits] could face pressure," Fink stated.
Specific threats have not slowed growth yet, however, as evidenced by the growth in single-seller mortgage warehousing facilities - one of the first sectors that will be negatively impacted should the housing bubble burst. Of the 60 active single-seller programs, roughly one-third are mortgage warehousing facilities, totaling up to $50 billion in outstandings.
"I see this continuing despite the fact that everyone in the world has a [housing] bubble," added BofA's Austen. "And the bubble is going to end."
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