Not for the first or last time, Europe's major securitization conference echoed to a familiar cry: we want greater transparency and we want it now!
Despite the overall bullishness of most attendees at the IMN/Fabozzi conference in Barcelona, Spain, the call for greater transparency was aired more than any other, with many saying that it was the only way for the securitization market in Europe to develop in the way that it has in the U.S. Although most accept that progress is being made, there are still significant steps to be taken before they will be satisfied.
One particular fault in the current set up is a lack of uniformity in the way terms are defined and the way information is presented. "The situation is continuing to improve but there is a lack of consistency in how terms like delinquency and dilution are defined," said Vernon Wright, vice chairman and chief financial officer at MBNA America Bank. "Factors aren't being disclosed and it all hurts secondary trading: investors want and need to know how a deal is performing today."
Robert Drutman, portfolio manager with responsibility for bond investments at the European Bank for Reconstruction & Development, echoed Wright's sentiments. "We still have a considerable way to go and have to improve the manner in which we distribute information," he said. "Issuers have become more amenable and the ratings agencies have played their part, but there is a need for uniformity. We need one-stop access sites where investors can see all the information. It reduces the time and cost of doing this work."
Peter Shorthouse, who heads the European ABS team at UBS Warburg, was another one to add his voice to the debate, and indicated that a failure to improve transparency could have serious implications for the future, particular in terms of subordinated debt. "Growth in subordinated tranches is fundamental to the future success of ABS," he claimed. "In this area, we are seriously lagging behind the U.S. At the moment, banks are finding it very difficult to place these tranches and it could become a serious constraint on the market."
Shorthouse accepted that banks may not have helped investors in this area, but said that they were beginning to realize the importance of keeping them informed. "We're starting to see good research but it's still not enough," he continued. "We'll be publishing information for every new deal. We haven't in the past but investors want this to able to analyze the value in trades."
Trudie Pearce, head of credit with Prudential M&G, was one investor who was particularly scathing of the present state of affairs. "As we move down the credit spectrum, the situation gets even worse," she said. "We want to do down to triple-B paper, but it's imperative that we receive the right information."
Pearce believes that issuers need to be less secretive. "We really want to look at the underlying industry involved but there are barriers to this," she said. "Our biggest irritant is not having easy access to projections. We want to see what is driving cashflows; something we need, as we are the ones who'll be taking the first risk. And [yet] we have to sign confidentiality agreements: is that suitable for a deal that's going to be publicly issued?"
Her comments provoked a response from Simon Kingdom, financial director at Kensington Mortgage Co., a company that has launched 10 MBS deals in the last four years. "Conformity of standards in investor reporting is an important issue, both in the minds of investors and issuers," he said. "But we would be concerned about disclosing information into an unstructured environment. Issuers don't want to reveal too much about their portfolios, as they don't want competitors to know what they are doing."
This conflict of interest between investors and issuers would appear, at the moment at least, to be a difficult one to resolve, but Chris Nordeen, chairman of RFC Mortgage Services Ltd., was one issuer who could see the benefits of providing better access to the company's data. "We've actually seen investors differentiating in favor of better disclosure," he said. "If they get the necessary information, they reward us with better pricing."