Bankers, investors, issuers and anyone else interested in securitization matters assembled en masse in mid-June in Barcelona for the Global Asset Securitization conference organized by Fabozzi/IMN. Amidst all the parties, excessive alcohol consumption and general shenanigans, the casual observer would be hard pressed to see any purpose beyond the delegates having a good time.
But there were serious topics to be discussed and the banks, in particular, wanted to assure those that did attend, that the somewhat slow first half to the year was no signal that the European market had hit a wall. The more bullish amongst them suggested that the market was as healthy as ever, and that a good second half to the year would result in another record year of issuance.
Scott Ulm, managing director and head of European structuring for Credit Suisse First Boston, was in positive mood, and one of the many bankers who said that the level of activity going on was not reflected in the statistics. "The deals are out there but a lot of it is shown in different markets, such as credit derivatives and the synthetic commercial paper market," he said. "I certainly expect business to increase in the second half of this year."
Tamara Adler, head of European securitization at Deutsche Bank, took up Ulm's point and added that other factors should also be taken into account when assessing the market. "I think it's misleading the way that we look at transactions," she commented. "There are a lot of hybrid transactions out there and the investor base is growing significantly. For the rest of 2000 and next year, we will see more secondary trading, an increase in pan-European and global transactions and I expect a higher volume of interest in subordinated tranches."
Traders, understandably, were probably the keenest to talk up the market, but had some interesting observations on how they expect the market to go, particularly in terms of secondary trading, and on the advantages or disadvantages of the increasing trend of having joint bookrunners on transactions.
Cyrus Korat, vice president of European ABS/MBS trading at Merrill Lynch, said that demand conditions were good but couldn't foresee the secondary mark developing for the time being. "At the moment, investor demand is unrelenting," he said. "But investors are holding paper so there isn't really that much of a secondary market."
Rob Ford, a director of trading at Barclays Capital in London, said that aside from the immature secondary market, ABS was in a state of maturity that made asset-backed bonds attractive against other alternatives. "We're seeing the market growing up," he argued. "Investors are buying triple-A rated ABS as an alternative to treasury and government bonds. That bodes well for the market going forward."
K.V. Prabhakar, head of Deutsche's syndicate/sales operations for Europe, was also encouraged by the present situation, but reflected that issuers were currently profiting from favorable supply side factors. "At this time, we know that investor appetite is high," he observed. "The only thing that could put pressure on spreads would be a continued surge in issuance, when investors will start to pick and choose deals."
The most interesting debate that emerged among the traders concerned banks running joint accounts on deals.
Andrew Allan, vice president of asset-backed securities at Schroder Salomon Smith Barney, while understanding an individual bank's wish to avoid revealing their investor bases, gave a cautious thumbs up to co-operation. "Banks running deals have found it valuable to keep their investor base to themselves, but this is not so advantageous now because the market has matured," he said. "But if, for example, three trading houses are brought in, it creates open books, leads to an increase in information and boosts the potential for a secondary trading market."
Prabhakar was one trader who questioned the benefits of co-operation on the basis that co-leads don't have the incentive to do anything beyond the initial sale process. "I'd say that there was little economic advantage for co-managers to support the after market," he argued. "You get a full fee from the lead manager anyway."
Joseph Smaller, managing director at Vining Sparks Europe, felt that Europe could heed the example of U.S. traders who had got together through the revolutionary concepts of trust and co-operation for the benefit of all parties. "We need a traders association similar to the ones developed in the States," he said. "The secondary market will take time, but we need to get together as an industry to support it."