Fitch Ratings said in a teleconference last week that Pan-European consumer ABS issuance has risen and the economic factors behind the market are looking strong enough to support the rise in delinquencies charted by the agency's consumer ABS consumer indexes.
Rui Barros, an analyst who spoke at last week's conference, said that the rise in delinquencies has met with a simultaneous rise in excess spreads, easing any immediate cause for concern in the performance of Pan European consumer ABS deals. "One of the important features of the pan European index is that it's rated in terms of collateral," said Barros. "Credit cards represent 47% of the rating indexes so the performance of this collateral determines the overall performance of the European indexes."
Credit cards usually exhibit a different behavior from other types of consumer assets - mainly consumer loans and auto loans. Barros said that delinquencies are increasing in these other types of consumer assets but some of the net losses are being supported by high recoveries. Barros said that the agency is optimistic about performance across all folders and said that economic trends like diminishing unemployment rates in Europe should add fodder to this positive outlook. But he cautioned that while the boom in the consumer credit sector would lead to a rise in issuance volume, it could also fuel losses.
In terms of how these deals are performing on a country by country basis, Barros said that issuance via the German auto loan market, which is currently weighted at 0.4% of total market issuance, could be an indication that volumes are set to go up and would lead to country-specific commentary going forward. "Other countries might see some growth: Spain and Greece have both experienced significant growth in their credit markets," said Barros. He added that Greece in particular has grown enough in the sector that issuance is expected from the country by year's end.
In Portugal, for the second consecutive quarter, there was no consumer ABS issuance in the first three months of 2005. This dry spell stems from a lack of critical mass coupled with changes in funding requirements, according to Fitch. Some of the more recent transactions are still in their revolving periods and are therefore able to continue purchasing new assets. In the performance index report on Portugal, if the anticipated covered bond legislation is passed, it is likely that the focus in coming months will shift to RMBS portfolios , added Barros.
"Since the last report Portugal has gone through new elections and restating of the government deficit," said Barros. "It's led to strict measures taken by the government that could negatively impact on the consumer market." In recent years, Portugal has been able to keep its deficit below the 3% limit set by the Maastricht treaty via one-off measures like securitizations. Banco de Portugal, the country's central bank, has projected a 2005 deficit of 6.8%. This assumes no one-off measures are implemented as advised by the government.
Barros said that the government's concern over increasing debt will lead to series of tax hikes, including a rise in the Value Added Tax from 19% to 21% as well as a rise in the petrol tax. "New issuance will certainly depend on such developments, as well as on interest movements, the credit quality of the country and its main financial institutions, which are the main originators in consumer ABS," reported the agency. "The performance of current transactions will also be impacted if the indebtedness level increases."
Nonetheless, auto loans and consumer loans improved dramatically in the first quarter of 2005 where delinquencies and losses fell while excess spreads increased. The Portuguese index is made up of 13 transactions, four of which - two consumer deals and two auto loan deals - account for 75% of the index. "The main driver of ABS in Portugal has shifted and funding is no longer the main reason why it happens," said Barros. "This might lead to some increase of issues to the market."
(c) 2005 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.