SOUTH BEACH, Fla. - Those braving the two-week conference marathon perhaps welcomed the smaller crowd at Strategic Research Institute's ABS Industry Summit, known for more focused panel discussions and a less hectic schedule, arguably bigger bang for your ABS buck.
According to conference organizer Rita Karsadi, about 500 attendees and exhibitors gathered for the SRI leg of trip.
With a new domestic location and a leave-your-suits-at-home attitude, the conference attracted a mix of players: those catching the jet stream back to the U.S., those who preferred to never leave, and those who favor the smaller, more manageable feel of an SRI conference.
Meanwhile, globalization was the focus of the opening panel discussion. Growth continues abroad, particularly in Asia, Australia and Europe, which could be "safe havens," should the SPE consolidation issues stymie the U.S. market.
Developments overseas include standardization. Basically, underwriters, issuers and lenders are working to align their practices on a worldwide basis so that ABS will cross boarders more fluidly.
Asia is showing the greatest growth potential, noted moderator Charles Hindmarsh, president and founder of State Street Global Markets. The Korean markets have developed at a rapid pace, and communist China is one of the next targets for ABS. Karl Marx is surely spinning in his grave.
Panelists pointed to the upward mobility of the Chinese population, as well as the sheer scope of the consumer base. "If you have 50 million people with credit cards, then you have the opportunity for securitization," Hindmarsh said.
In Europe, where securitization is already an accepted practice, panelists added that, should consolidation become an issue for conduits and CDOs, European programs would offer a sort of "get-out-of-jail-free card."
Hindmarsh added that European regulators are "not as gung-ho" over the issues raised by the failure of Enron Corp. "Euro markets can be a safe haven for conduit business should consolidation snuff out ABCP in the U.S.," Hindmarsh said.
Chris Donnelly of Structured Finance Advisors added that the majority of SFA's CDO supply is placed in European conduits.
As for globalization, U.S. investors have shown appetite for exposure to non-U.S. assets, such as Australian mortgages, noted Debbie Svoboda, portfolio manager at Victory Capital Management. "Aussie MBS offers a good opportunity for diversification," she said.
In the U.S., regulatory concerns are still great and could lead to potential obstacles to the market's growth. Panelists argued, however, that as long as regulations stay consistent from state to state, damage would be easier to gauge and, hopefully, structured around. For example, recent anti predatory lending legislation in Georgia (see ASR 10/7, p. 12), and a subsequent announcement by Freddie Mac that it would cease purchasing sub-prime loans in the state, is a harbinger of negative things to come.
"Issuers can deal with regulation as long as it is consistent," said Eric Williamson, managing director at surety MBIA. "Imagine lending in 50 different states, each with a different set of lending policies," he added.
The outlook over the long-term remains positive, as baby boomers reach retirement age, and the ABS market matures in tandem (though hopefully avoiding retirement). Despite the government's current spending spree and the potential for military action in the Middle East, a budget surplus could conceivably be restored by 2006, said State Street's Hindmarsh.
Also, as the government pays off its debt and reduces Treasury-bond issuance, "There will be a massive supply gap for high-quality fixed-income bonds," another panelist noted. Could that be a boon for ABS?
