BOCA RATON, FLA. - In the spirit of ABS conferences past, the opening panel discussion at Information Management Network's ABS East had some heat and tension to it. Perhaps the panel climaxed when John Devaney of United Capital Markets suggested that investors buy into already distressed positions for the educational experience. This elicited a lashing from Dan Stachel, a principal at State Street Global Advisors, who compared that logic to crashing a vehicle in order to test the integrity of the emergency room.
The analogy of the car was carried throughout the panel. At one point, Mark Adelson of Nomura Securities said his focus is on the automatic breaking system (ABS) and mechanical features of the car. Stachel's response to that was, "The problem is that the car doesn't work, and the people who sold me the bonds told me it did."
Oddly, there was little banter between moderator Brian Clarkson and Stachel, the two most prone to quips. This was, apparently, Clarkson's last stand as moderator of the opening session, though Clarkson has stated as much in the past. This year, the Moody's Investors Service securitization chief - who was recently promoted from senior managing director to Galactic managing director - presented a "top five" list of reasons for stepping down from the podium. Number one and two follow, respectively, in reverse: Dan Stachel is really beginning to scare me, and, If you do 10 opening panels, it qualifies as a common law marriage with Scott Brody.
All about fraud
As reported in ASR's conference daily, fraud was the topic of choice for the opening panel discussion.
Though the market has proven it can survive a significant downturn, consensus seemed to be that securitization, in its present form, is flawed, in that it's too easy for a desperate seller to manipulate cash flows.
The discussions began with a look at how the trustee's role has changed over the last year. Trustees were heavily scrutinized - some say made a scapegoat - over the failure of National Century Financial Enterprises.
Speaking from the trustee's perspective, Robert Snyder of JPMorgan Trust Bank noted that the communication lines between a trustee and other parties to a transaction, perhaps most importantly the investor, have improved substantially.
As usual, talk of trustee fees, and whether or not a third-party policing system (which would also come at a fee) should be brought into the securitization structure. Stachel- a notorious antagonist at these sorts of panel discussions -disagreed wholeheartedly. "I think it's becoming clear that there's a basic flaw in asset-backed structures," he said.
Stachel took the position that the issue is not due diligence from a trustee, but rather about a trustee knowing when it's all right, and when it's not all right, to release cash.
The opposing point of view, represented here by Adelson, is that a capable third-party entity be incorporated into the securitization structure, with powers just short of being able to "pistol-whip a CFO.""Unless investors demand tough third-party oversight, it will not happen," Adelson said.
Ultimately, investors will vote with their money, said Michelle Russell-Dowe, a portfolio manager at Hyperion Capital Management: "Essentially buying into a deal is accepting the roles of everyone in the transaction."
Hyperion, for example, is reducing exposure to parties it is not entirely comfortable with, Russell-Dowe said.
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