Moody’s Investors Service's downgrade of Spain may have deepened the European debt crisis, but it isn't indicative of the performance securitized deals in this or other peripheral states.
That was the conclusion of panelists at Information Management Network's Global ABS conference on Thursday, the day after the ratings agency lowered Spain's government bond rating to ‘Baa3’ from ‘A3.'
Alessandro Gatto, managing director at JPMorgan Securities, compared cumulative losses in deals from Germany and Spain. He said that “at the end of the day, there is no substantial difference between them.”
However, other panelists said that investors' aversion to securitizations from peripheral states has had an impact on liquidity in the secondary market for these deals. There is also the potential currency risk, which is something that investors would now have to look out for.
DBRS Senior Vice President Bruno Franco contrasted the two biggest peripheral markets, Spain and Italy. The main difference between the two, he said, is the borrower leverage levels. Italy’s household indebtedness is 45% of GDP while Spain is at 82% of GDP. This is coupled with the latter country’s unemployment rate of close to 25%.
“We certainly think that, with Italy, in terms of credit fundamentals, there is room for interest from some investors,” Franco said.
In terms of Spain’s RMBS market, panelists said that it is not a homogenous one with coastal and central areas remaining robust while properties surrounding the central areas are suffering.
However, despite the high number of troubled properties in Spain, these have not been represented in the country’s nonperforming loan numbers. Panelists said that this might be due to how banks have been handling the repossession of homes.
Michael Bolton, managing director at Clayton Euro Risk, said that Spanish banks are taking the inventory of repossessed homes and putting them in their real estate units. These institutions are letting that inventory grow until they can resell them when the market gets better.