You might think hosting a conference in a building that's a throwback to the quiet elegance of Belle Epoque New York would give beleaguered finance types respite from the hostile markets outside.

Think again.

Last week, the Strategic Research Institute held the 3rd annual Russian Securitization Forum at the genteel House of the Bar Association. The event proved that the dim mood pervading credit markets is inescapable. For starters, the number of attendees fell well short of the 100-plus that had been anticipated in ads - a result, no doubt, of the retrenchment that's happening everywhere.

More significantly, no one I spoke with would venture to say when issuance in Russian structured product would return.

All the same, there wasn't a sense that the credit squeeze would suddenly snuff out the Russian potential that had been touted over the past two years, and that was being rapidly realized in RMBS. Since the market materialized in mid-2005, we've seen more than 20 securitizations backed by Russian originated assets placed both domestically and abroad for a total price tag of around $4 billion, according to Moody's Investors Service.

It was more a matter of waiting to see where things will settle.

For some, that won't be for a few months. Participants said a number of Russian issuers who had been planning to issue now or in the fourth quarter were instead warehousing their assets with an eye to securitizing an even larger pool next year. "A lot of transactions will be postponed until the first quarter," said a banker at the conference.

But there could be activity in the not-too-distant future, and, as is the case with market freezes, maybe all that's needed is one or two risk takers to start the thaw. One participant was holding out hope for the Moscow Mortgage Agency, which has a planned R2bn ($79 million) deal. While I'm unclear whether that deal is a true securitization - there are commercial loans being used as "security," according to SKRIN newswire - either way, if it comes soon, it may turn out to be the ice breaker people have been waiting for. Another possibility is an onshore credit card deal from Russian Standard, though I haven't seen a rating on it yet.

When uncertainty is this intense, the fear, naturally, is that whoever does the first trade can find they're under water the next week.

Russian originators looking to do term deals won't find the same reception they once had in the West. If European investors aren't going for the tried-and-true production, they're obviously not going to gobble up the new and exotic. Deutsche Bank analysts are of the view that issuance could shrink by as much as 70% and 80% in the last trimester, compared with the same period last year (see Euro market story p.20).

But blown-out spreads and fussier Western Europeans might hasten a process that has been sluggish so far: getting Russians to buy their own structured deals.

And maybe wider spreads will start to attract larger numbers of Russian investors to structured finance. So far, the locals haven't found structured deals that attractive. Hitting investment grade may be "cool" for domestic buy-siders, said one Russian banker at the conference, but ratings are less important to them than to their foreign peers. "Traditionally, Russian investors are willing to take high credit risks for high yield," he said, noting that even the higher-yielding mezzanine tranches in Russian ABS have gone to multilaterals such as the European Bank for Reconstruction and Development and the International Finance Corp.

Getting Russian investors more excited about ABS would open the door to a nice pool of liquidity. As of this year's second quarter, state pension funds managed more than $17 billion. Asset management companies and Russian pension funds can invest up to 40% in local RMBS, according to a presentation by Sergey Sidorov, head of fixed-income trading and sales at Russian bank Aton Capital. Maybe there is something for players to look forward to after all.

(c) 2007 Asset Securitization Report and SourceMedia, Inc. All Rights Reserved.

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