Information Management Network's (IMN) and the European Securitization Forum's (ESF) Global ABS conference held in Barcelona last week kicked off another record year in terms of attendance - a testament to the growing European securitization landscape.
Anyone who doubted the growing attraction of ABS needed only try to squeeze through the halls of the Hotel Arts, the conference's venue, last week. Indeed, IMN and the ESF will hold the conference in Cannes next year, as the Spanish location was too small to accommodate the new faces.
For those who just joined the European securitization game, Sunday's primer panels proved ideal. Topics ranged from prime RMBS structuring to the more complicated annals of the CDO world.
Europe's stability proved a magnet for new players. The volumes in 2007 are expected to reach record levels again, which should be met by ample demand. Growing investor demand for higher-yielding assets means pricing has remained relatively resilient throughout this year despite the recent troubles plaguing worldwide markets.
A research report published recently by JPMorgan Securities said that banks globally recorded revenues of almost $30 billion from securitization business in 2006, which almost equals the revenues generated by equity derivatives or cash equities trading. JPMorgan analysts estimate that European players gained revenues of about $7.5 billion from securitization. According to the report, Deutsche Bank comes out on top, with more than $2 billion from its securitization business and pretax profits of more than $1 billion, which is almost 11% of group profits. The second-biggest player in Europe is Royal Bank of Scotland, whose securitization revenues accounted for more than 4% of group profits.
The conference agenda proved more than accommodating to newcomers in ABS. Sunday's afternoon agenda ranged from an Auto 101 panel to a CMBS 101 panel. Iftikhar Hyder, who is managing director of credit at XL Capital Assurance and was on the arbitrage CDOs and credit performance panel, said discussion centered mainly on where investors could find arbitrage in CDOs (of CLOs, ABS, CDOs) in any part of the capital structure. The panel looked at whether the subprime woes of late will help bring back the arbitrage that has recently been priced out of this market. It also offered tips on what structures currently in the market are better poised to regain arbitrage.
The panel also looked at the proliferation of covenant-lite and second-lien loans: Are they as an indication of widespread acceptance of loans as a mainstream asset, or an indication of the credit cycle peaking? Panelists also revisited the topic of the CDO manager's role in a credit downcycle.
Patrick Cogan, director at XL Capital Assurance (U.K.) Ltd. who led the panel on understanding structured credit, offered tips on the major differences in how the European rating agencies approach different categories of ABS: consumer, commercial, future flow, and CDOs. Discussion among representatives of Fitch Ratings, Standard & Poor's and Dominion Bond Rating Service focused on how ratings withstood certain economic cycles, to what extent ratings take into account the possibility of fraud, and how ratings factored in differing legal jurisdictions.
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