More ABS in Mexico means higher demand for better servicing - that's the message that some market players are putting out there. There are certainly servicers striving to meet the challenge, particularly in the mortgage space, which is where growth has been fastest and where foreign investors and bankers have concentrated their energy. But there's room for improvement, and it's precisely within that room that foreign servicers might find compelling opportunities.
Here, I'll throw out a few. One is the lack of servicer advances in Mexico. Whereas in the U.S. and Europe servicers will enter into arrangements to cover delinquencies themselves, at least for a set period of time, this hasn't caught on in Mexico. "As transactions become more efficient in Mexico and the excess spread falls, the performance of the collateral and servicing proficiency becomes increasingly important," said Sergio Figueroa, an analyst for Standard & Poor's. This could be a key motivator for a servicer - local or foreign - to introduce the practice of advances.
Also limiting options is the fact that, when choosing backup, a Mexican servicer tends to shun peers with poorer rating-agency assessments, according to Glendon Mendivil, an analyst at Fitch Ratings. In addition, the quality and value-added content of reports, even among the higher-rated servicers, hasn't quite reached the level of the U.S. and Europe. "Oftentimes, the reports we get are simple financial statements reflecting the trust's balance," said Figueroa.
The servicing market in Mexico will also be shaped by a law that forces nonbank originators known as Sofols to make one of two choices before 2011: to either observe certain regulations as a niche bank or be unregulated. According to Mendivil, those who take the unfettered route will be free to expand their asset offering - until now Sofols have focused primarily on mortgages. This will no doubt influence where they'll develop servicing expertise.
Meanwhile, on the issuance front, the Mexican market continued apace in the first half of the year, though certain portions of the structured market might not turn out as voluminous as last year. The ABS segment, which includes MBS, hit Ps18.8 billion ($1.8 billion), from Ps27.1 billion in the whole of last year, according to local brokerage IXE. But growth has been weaker in CDO and future flow issuance.
Moving over to the cross-border realm, subprime proved that while the issue's been flogged to within an inch of its life in the financial and mainstream press, it's still got something to say.
Bernanke's comments last week about the market's stubborn bete noire helped stretch spreads on vanilla EM debt to the widest they've been since the first quarter. Also, thanks in part to the sector's knock-on effects on RMBS, general ABS product from Europe isn't looking so tough anymore (see story on p. 28)
As usual, structured EM paper didn't have as salient a benchmark, but I'd be remiss in not mentioning a deal that could hint at what's in store for others. Earlier this month, HSBC and RZB led a first-time RMBS for Moskommertsbank that had a Baa2'/BBB' senior tranche price at 175 basis points. The deal was 25 basis points over guidance, according to market sources, and a good 40 basis points over the nearest comparable I could find - an RMBS tranche from ZAO Raiffeissen. Sources close to, and away from, the deal noted that Moskommertsbank would surely have had to pony up for not boasting the name recognition of previous Russian originators. Also, one source said the issuer was downgraded while the deal was being marketed, though it must have been a private move, since I couldn't find a ratings dunk for the issuer on the Web sites of any of the three agencies. Still, wobbly markets must hold some of the blame for the spread uptick. Just how much might be clearer with the next unwrapped EM deal.
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