Even those familiar with the Argentine government's taste for theatrical populism were floored when President Cristina Fernandez announced two weeks ago that private pension funds would be nationalized.
Denigrating the pension administrators as "inefficient and ineffective," Fernandez cast the confiscation as a move to rescue Argentines from an uncertain retirement. The funds, like the rest of the world, have been hit hard by falling asset values.
The finer points aren't entirely settled, but the project was before the congress by mid last week, with local press reporting that most legislators were proponents. Nonetheless, even some of the proposal's supporters were dubious that the funds' management would remain independent from the government's regular budget.
The business press and markets were more than dubious. The opinion widely held by finance types is that this is an ill-conceived and clumsily disguised grab to solve the problem of making debt payments in 2009 and 2010 while commodity prices head south and spending growth soars.
What's in play is about Ps95 billion ($28 billion) managed by 10 pension fund management companies known locally as AFJPs. There's also the roughly Ps15 billion they receive annually.
Even if the government does keep the money separate from its budget, it still has a clear incentive to seize it from a financing perspective.
More than half of private pension money is in Argentine treasurys. If they control that money, they can basically cancel out a good chunk of debt payments. "The transfer of these assets would enhance the government's short-term funding flexibility by eliminating refinancing concerns on the public debt currently held by the private pension funds," said Mauro Leos, vice president of Moody's Investors Service, in a report.
But what does this mean for ABS?
On the face of it, the move could be catastrophic for the industry.
The local securitization market, which is dominated by short-term consumer ABS, owed much of its development to the AFJPs. According to a couple of Buenos Aires-based bankers, roughly a third of consumer ABS goes to the AFJPs.
The impact of their withdrawal, however, might far exceed what direct holdings suggest, said one of the bankers.
Here are some of the ways the AFJPs have a multiplier impact on ABS demand: the pension funds have related insurance companies, which are also ABS buyers; the funds own a significant chunk of another leading source of ABS appetite, common investment funds; and finally, the AFJPs have about Ps8 billion stashed away in banks, yet another major source of ABS liquidity.
All told, the future for ABS issuance looks grim. Issuance had reached about Ps6.7 billion in the year through October compared with Ps7.8 billion for all of 2008, according to Standard & Poor's data. Of the 172 transactions, about 146 were assets related to consumptions such as credit cards, personal loans or consumer loans.
But there is a glimmer of hope, at least if you have faith in Amado Boudou, the head of ANSES, the government social security agency that stands to see its portfolio swell as it absorbs the private system.
The ANSES Web site quotes Boudou guaranteeing that the agency would not merely maintain the AFJP's investments in consumer ABS but actually jack the figure up. The rationale is that consumer ABS "is linked to the domestic market, work and the wages of Argentines," he said.
No doubt the consumer finance companies, retail stores and other originators that have been leaning hard on ABS funding would like to believe Boudou. With other funding sources bound to grow even scarcer, they'll have no other choice.
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