At the American Securitization Forum's (ASF) conference last month held in Las Vegas, a survey presented in one of the panels showed that recovery for the U.S. securitization market won't happen until 2011.
In Europe, where government interventions are run on a country-by-country basis and seem painfully fragmented, getting anyone to make predictions is much more difficult.
Marco Angheben, director at the European Securitization Forum (ESF) and an attendee at the ASF conference, said that the U.S. market has benefited from a more unified front. Europe, on the other hand, has yet to enact a European-wide stimulus package.
On a jurisdiction-by-jurisdiction front, the U.K. has come up with some solutions that include the Homeowner Mortgage Support Scheme, which allows homeowners experiencing a significant and temporary loss of income to defer a portion of their interest payments on their home for a period of up to two years; the Asset Protection Scheme, a new guarantee scheme for ABS to support lending; and the Asset Purchase Facility, allowing the Bank of England to purchase up to £50 billion ($73.14 billion) in high-quality assets such as paper issued from the Credit Guarantee Scheme, corporate bonds, commercial paper, syndicated loans and certain ABS.
In Spain, the Financial Asset Acquisition Fund (FAAF) began purchasing assets in the fourth quarter, with two auctions completed in 2008 for a total of E9.3 billion. Under FAAF, highly rated (triple-A for outright purchase, 'AA' for repurchase) covered bonds and certain securitizations from Spanish credit institutions are eligible for purchase.
On a European Union-wide (EU) level, talks continue toward the reformation of the securitization market. EU Commissioner Charles McCreevy last month said that the ABS market is still far from restoring the trust and confidence needed for recovery and suggested more stringent conditions for the industry in a revised capital requirements directive.
The new directive, he said, should ensure careful ABS due diligence and precise ABS cash flow sensitivity analysis. Actions should prevent securitization-related stakeholder conflicts of interest (originator versus rating agency or versus investor). McCreevy added that those banking federations "who have lined up to table wrecking amendments" are not helping the recovery of trust in the capital markets, but are underpinning the distrust that is now embedded within these sectors. If successful, they will hinder the reopening of a once-transparent, responsible and vibrant securitization market - a market that, if properly managed, can contribute meaningfully to sustainable, long-term economic growth.
Angheben also said that the industry has engaged the EU with important discussion regarding the reformation of the securitization market.
Last June, nine European trade groups - the Commercial Mortgage Securities Association, the European Association of Co-operative Banks, the European Association of Public Banks and Funding Agencies, the European Banking Federation, the European Savings Banks Group, the ESF, the International Capital Market Association, the London Investment Banking Association and the Securities Industry and Financial Markets Association (SIFMA) - worked together to release 10 industry initiatives to make the securitization market more transparent in response to the European Council of Finance Ministers' (Ecofin) call in its October 2007 roadmap to "enhance transparency for investors, markets and regulators" by mid-2008.
Angheben said that groups have delivered on nearly all of the initiatives they committed to the European Commission. The latest comes by way of its RMBS principles for transparency and disclosures, launched at the end of last month. Twelve issuers have committed to using the standards and are in various stages of evaluating and implementing the new principles. For example, in certain jurisdictions, the industry is actively discussing the reporting format with relevant regulatory authorities, which will affect timing.
"Our overall goal is to help restore confidence in European securitization by demonstrating that the industry is actively improving disclosure standards," said Angheben. To that end, Angheben said that the industry has been working extensively on not only improving the reporting standards for European RMBS but also enhancing transparency with regard to underwriting and origination practices; restoring the credibility of credit rating agencies; and improving confidence in valuations, methodologies and assumptions.
These forward-looking initiatives aim to restore confidence and do not in themselves provide the key to kick-starting the market again. For that to happen, Angheben said the economics have to work for investors to come back. "They need to make sure that they can buy and sell securities at a fair price in a timely fashion. This is one of the key elements that is needed to bring back confidence in the market," he said.
But unlike the U.S., where securitization volumes have nearly been cut into half, European issuance still looks healthy. Bolstered by central banks' liquidity programs, primary issuers have been able to retain securitization deals from the purpose of repo financing at a later date. "A big difference between Europe and the U.S. is that numbers have been booming in 2008 as banks tapped into the European Central Bank and Bank of England transactions," said Angheben.
Over 95% of the transaction volume over last year was for this purpose, and it's likely to remain a prevalent trend this year. Volumes so far in 2009 have been again dominated by the securitization-for-repo transactions. Unicredit analysts said that any government-backed initiative and new regulations will help to support the drive on secondary spreads, which, over the month of February, saw some tightening and improving sentiment.
"Any chance of real recovery is compounded by the recession," Angheben said. "The current credit situation increases risks that investors have to consider in their decision process. But there is a strong willingness from issuers, investors and other market participants to reopen the securitization market because it has a strong impact on the real economy."
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