The opening of Information Management Network’s (IMN) Global ABS 2010 was marked by some hope for a European ABS market resurgence.
For one, preliminary conference attendance numbers are up 50% over last year with 3,400 registered as of press time.
Speakers also pointed to the return of primary ABS issuance, specifically deals from the U.K., Germany and Holland. Spreads, they said, have widened but they did not gap out as much as expected considering the problems in Greece.
Panelists remained optimistic despite the pervasive problems that the European market is facing, including sovereign headline and extension risks a well new regulations that are making it more expensive for issuers to come to the securization market.
Steve Gandy, head of securitization at Santander Global Banking & Markets, said that there are several themes that are underlying the market.
There is, he said, a crisis of confidence, with the general public and the media thinking that all ABS assets are toxic. He also mentioned the “sheer lack of understanding on how securitization works.” This is why some of the conference panels were designed to educate participants about the basic ABS structures.
The industry, he said, is suffering from a “severe” loss of credibility.To regain this, Gandy said that the onus is on market players to commit to best practices and greater transparency.
However, despite the negative perception of the sector, Gandy said that there is a growing recognition that if properly carried out, securitization could increase the supploy of good credit products.
Rick Watson, COO of the Association for Financial Markets in Europe (AFME) and the European Securitization Forum, noted that there is “ a lot going on in the industry” and because of this, members’ involvement becomes crucial.
In his remarks, Watson mentioned positive industry developments, including AFME’s creation and more publicly placed securitizations seen in 1Q10.
In 2009, he said that there was €414 billion ($173.2 billion) that was issued. Only 6% of this number was publicly and privately placed, the rest were issued in the securitize-to-repo format. Thus far in 2010, there has been €76 billion in issuance, 19% of which were publicly or privately placed.
He said that although spreads have been grinding tighter, with the exception the sovereign crisis, “we still have a long way to go” before securitization becomes economical again for issuers. He pointed out that 90% of ABS that has been issued in Europe represents funding for the real economy, unlike in the U.S. where products like CDOs made up a lot of the deals.
Watson also enumerated the different regulatory changes that the European ABS market has to deal with such as mandates from the G20, CRD 2, 3 and 4 as well as Securities and Exchange Commission Rule 17 (g) 5.
In the last part of his speech, Watson also presented several questions that the market is grappling with.
Some examples of these questions are the following: What are the market’s wholesale funding needs? How long will legacy assets take to run off? Will investor confidence return soon enough to restore spreads so that it would be economical for issuers to come to market once again?