S&P: Euro Issuance Slides with Economic Woes
European securitization issuance is still under pressure because of several factors. These include banks' ongoing efforts to shrink their balance sheets, large central bank funding programs, and regulatory uncertainty, Standard & Poor's said in a report released yesterday.
The rating agency also believes that weak economic growth and Europe's difficult lending environment are still negatively impacting outstanding securitized transactions' credit quality.
The region's investor-placed securitization issuance reached €44 billion in the first seven months of 2012. This decreased roughly 10% from the same period in 2011. S&P expects that issuance will stay slow in the remainder of 2012 with investor-placed volumes probably ending the year less versus those in 2011.
Analysts think that European securitization issuance can finish 2012 lower versus last year with banks tapping central bank lending programs for a bigger portion of their financing needs, S&P noted.
Banks' funding costs are still high and consumer confidence is still low, which further depress new lending growth, the rating agency said.
High unemployment, falling real wages, as well as sluggish house prices continue to be credit negatives for the RMBS and ABS sectors.
Falling commercial property prices would mean that commercial real estate finance will still be hard to obtain despite a recent rise in lending by insurance firms. This will probably keep the number of maturity defaults and extensions high within loans backing CMBS deals, S&P stated.
In the long term, the extent by which securitized collateral is treated as a liquid asset in the Basel III directive as well as its treatment under Solvency II regulations might be key to future issuance numbers and investor demand, S&P said.
The region's retained issuance totalled around €100 billion in the first seven months of the year, S&P noted citing JPMorgan data.The level dropped roughly 20%over the same period in 2011.
This dip is partly due to banks in the European Economic and Monetary Union (EMU) meeting 80% of their 2012-2014 debt redemptions via the European Central Bank's three-year long-term refinancing operations, the rating agency noted.