IMN Global: Europe a Tale With Two Narratives

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In Europe the securitization story, post financial crisis, has been written from two points of view: Northern Europe vs. Southern Europe.

For the North the picture remains relatively rosy, according to panelists at today’s opening session of Information Management Network’s Global ABS event in Brussels. German securitization, for example, continues to run on all cylinders.

But Greece, Portugal, Spain and Italy are a different story. Securitization volume has lagged as the result of the ever-burdensome regulatory environment and the withdrawal of bank lending from these markets.

This bifurcation of Europe is expected to continue into 2014. “We are not very optimistic,” said Ganesh Rajendra, managing director and head of credit and mortgage strategy at RBS. “There continues to be a lack of credit flow into the private sector, especially in Southern Europe, five years after the financial crisis happened.”

There is some evidence that regulators have woken up to the importance of reviving the securitization markets. James Hewer, a partner on the structured finance team at PriceWaterHouseCoopers, said that regulators are realizing that securitization is funding for the real economy.

As an example of this Hewer points to the German auto market, where there is roughly €30 billion ($40 billion) worth of lending yearly; securitization funds one-third of this, or €10 billion. Not coincidentally, in markets that have historically bigger users of securitizations (think the Netherlands, U.K., Portugal, Ireland, Spain and Italy), a contraction in securitization volume has resulted in a contraction in consumer lending.

However, Hewer remains concerned that the European Central Bank and the Bank of England might pull back too soon on the life support they've been providing the region's banking system. The various liquidity schemes coulld be withdrawn before all the pieces have been put in place to allow securitization to resume funding economic growth.

Timing is a big concern. Panelists said it won’t be enough to address regulatory hurdles to securitization; regulators must keep in mind that the longer they take to implement appropriate changes, the more likely it is they will have to count some players out of the market. 

Panelists said these market players feel they can’t support the infrastructure needed to do securitization deals that aren’t happening today when there is there is no market to support it.

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