NEW YORK -As securitization continues to draw the Enron-weary public eye, members of the ABS community are trying to educate the mainstream financial press, dispelling the notion that securitization itself is a rarity in corporate America, and elsewhere in the world.
Specifically, at a press conference last week hosted by the Bond Market Association, speaker Karen Weaver, ABS research head at Deutsche Banc, pointed out that securitized assets, including both MBS and ABS, account for 34% of the outstanding bond universe, the largest single segment. According to Deutsche Banc's research, there is $5.4 trillion in outstanding securitized assets, $4 trillion of which is MBS, $1.1 trillion ABS and $280 billion CMBS.
About 25 financial reporters gathered for the informational session on special purpose entities (SPEs) and securitization.
The panel included George Miller, general counsel at the BMA, Deutsche Banc's Weaver, Jason Kravitt, head of the securitization practice at Mayer Brown Rowe & Maw, and David Jacob, managing director at Nomura Securities.
The overall message of the session was that "securitization" does not describe secret shady deals that no one understands, but rather as industry players continually argue - a large, transparent, global market providing substantial liquidity to corporations and consumers alike.
"The technology is very beneficial," Weaver said, when asked by a reporter what exactly the panel intended the group to come away with.
"It's not the tools themselves, it's how they're used," Miller added.
"SPEs are the means to accomplish the good," Kravitt chimed in.
To some in the industry and to the reporters present, no doubt - these assessments might have seemed a bit rosy, bearing in mind some of the abuses in lending that securitization has facilitated over the years, and the balance-sheet/profit manipulation accomplished by gain-on-sale players in the late 1990s. Still, this point, at least, was thoroughly driven home: halting the $300 billion-plus securitization machine would be economically catastrophic.
"The industry has been around for a long time," Kravitt said. "But the industry is just beginning to get used to explaining itself to the public."
Rating agencies testify on Enron
Separately, perhaps reminiscent of State Street investor Dan Satchel's heated opening ceremony discussion at the Information Management Network's Arizona conferences in February, the Securities & Exchange Commission was alleging that the rating agencies should have seen Enron coming miles before it was too late, according to an article in last week's Wall Street Journal.
Taking it to the next level, however, the SEC argued that the rating agencies should be federally regulated.
"Regulating the rating agencies is a terrible idea," said Mark Adelson, head of ABS research at Nomura Securities. Adelson likens ratings analysts to journalists who publish credit opinions. "It's my opinion that [regulating the agencies] violates the first amendment of the constitution, the part about freedom of the press."
Meanwhile, a roundtable before a Senate Governmental Affairs Committee investigating what went wrong with Enron included analysts and managers from all three rating agencies. The agencies maintain that they should not be required to police these companies and see through deliberate attempts to conceal and misrepresent financial data.
"At some level the regulators have become spineless and lazy," said an industry source who opted to remain nameless. "They've tried to push off the responsibility of policing companies to the rating agencies. The bank examiners have 7,000 employees just to focus on banks. Yet they're shirking their responsibilities. They have more power than the rating agencies, they have the regulatory mallet to have access to whatever documents they want to see, and they have all the time in the world."
At the hearing before the Senate, Standard & Poor's managing director and credit analyst Ronald M. Barone put the blame squarely on the defunct energy giant.
"On a number of occasions, Enron made what we later learned were direct and deliberate misrepresentations to Standard & Poor's, relating to matters of great substance," Barone said, citing several specific examples.
On two occasions, in 1999 and again in 2000, Enron made presentations to Standard & Poor's that purported to provide an analysis, "including the kitchen-sink," of 100% of Enron's off-balance-sheet affiliates. These presentations failed to mention many questionable partnerships, including Chewco, LJM1, and LJM2.
"For a company that actually showed between $8 billion and $10 billion in debt, the effect on Enron's book debt-to-total capital ratio of showing several billion more would have been enormous," Barone added.
