The mood at the Association for Financial Markets in Europe’s (AFME) and the Information Management Network’s Global ABS 2011 was upbeat, although still marked by the uncertainty that the lack of regulatory clarity brings.
As of today, the gathering’s first, close to 2700 out of more than 3100 registrants have participated in the conference being held in Brussels.
Buyside presence was notably strong. As one conference participant put it, “It feels like there are more investors now than last year, when it seemed like there were a lot of dealers in attendance.’
The discussion centered around regulatory issues still left unsettled, including Basel III, Solvency II and Article 122A of the Capital Requirements Directive adopted by the European Parliament.
Rick Watson, head of capital markets and managing director of the securitization division at the AFME, in his opening remarks called for a “coordinated approach” to securitization regulation.
But aside from regulatory hindrances, the securitization industry is also battling negative headlines, according to panelists at the conference.
Panelists in the opening panel said that European securitization specifically is suffering from the “headline effect”, which is exacerbated by a “misalignment” between the regulators. The problem, they said, is that people are lumping together U.S. and European collateral performance, particularly linking European ABS to the U.S. subprime experience. A comparison, speakers said, that is underserved.
Kevin Ingram, a partner at Clifford Chance, said that European securitization players need to have confidence that the Continent’s ABS comprises good quality product.
Dominic Swan, global head of fixed income at HSBC Global Asset Management, said that securitized product actually offers attractive yield, which is one of the paradoxes in the European ABS market.
“The fundamentals of the product are attractive, although there are institutional constraints,” he said, issues that do not impact the covered bond area.
There are two problems with securitization as a funding source that Swan cited: regulatory uncertainty and the lack of liquidity.
Despite these issues, securitization, panelists said, has a place in the global financial markets.
Robert Liao, managing director at Citigroup Global Markets, said that securitization has not come back in full form. However, it is necessary to spur leverage, which in turn, will promote growth in the global economy.
It also gives issuers the ability to tap into multiple financing sources, specifically secured funding, which is beneficial given the volatility in other funding areas, Liao said.