Over the past several weeks, ABCP industry sources are reporting a slowdown in origination volume in response to potential accounting hurdles and consolidation issues currently being discussed by the Financial Accounting Standards Board.
The revision of FASB 94 is expected to be released for commentary sometime in April. The new consolidation proposals could strip some of the economic incentives found in ABCP and other securitization vehicles, specifically CDOs, as neither are structured through qualifying-SPEs. For ABCP, it could require individual sellers to consolidate the assets back onto their balance sheets. For securities arbitrage conduits, the administrator could be made to consolidate.
Specifically, an administrator at a foreign bank running several securities arbitrage conduits said that at least one of its conduits is liquidating positions in CDOs. Another source wondered why FASB would be the cause if the foreign bank is not held to GAAP compliancy.
Meanwhile the Federal Reserve is reporting that ABCP outstandings were at about $726 billion as of March 20, on par with February month-end figures. As previously reported, February marked the second consecutive month of declining volume, though this is a typical start-of-year phenomenon for the ABCP market, following the end of year push seen in December.
"As to volume, you never can tell, because whatever doesn't get done, you don't see," said Everett Rutan, in the ABCP group at Moody's Investors Service. "Certainly, we've heard rumors of deals postponed. On the other hand, as far as I can tell - and this isn't a scientific observation - but we seem to be quite busy here, although it's hard to know for sure until the quarter is over."
Rutan added that Moody's is still seeing a strong deal flow.
Separately, on perhaps a positive-for-ABS note, Federal Reserve Chairman Alan Greenspan last week warned of the dangers of an overreaction to Enron Corp. by regulators and the accounting community. Greenspan, a long-time advocate of (Ayn) Randian economics, said that markets should be the ultimate regulators.
On the flipside, the New York Post last week hopped on the ABS bash-wagon, walloping American Business Financial Services and claiming the company is using securitization, among other financing techniques, to hide its true financial condition.
ABFI responded promptly with a release stating that the Post story was factually incorrect, and took issue with specific assumptions, particularly in calling ABFI's subprime borrowers "deadbeats."
Also, the Post insinuates that ABFI's use of gain-on-sale accounting is scandalous, to which ABFI replies, "The writer also questioned widely-used gain-on-sale accounting practices. He appeared to be unaware that gain-on-sale accounting is entirely consistent with generally accepted accounting principles (GAAP) and is used by many of America's most prominent financial institutions."