The European primary market remained as slow as ever last week. Deals continue to be originated for central bank repo collateral, and there is no indication of when primary market activity will pick up again, market analysts said.
Almost all of the 83 billion ($130.4 billion) of assets structured over the month of June was retained by banks for the purpose of the European Central Bank's (ECB) refinancing operation. U.K. lenders led the way with Royal Bank of Scotland issuing an RMBS deal sized at GBP16.8 billion ($33.2 billion).
In Continental Europe, Fortis Bank issued a 15 billion Belgian BASS master trust, and Barclays Capital's Italian arm issued a 4 billion single, triple-A tranche deal dubbed Mercurio.
Last week saw the 2.5 billion Greek SME securitization for EFG Eurobank Ergasias S.A. price. It's the first SME deal from the bank. The deal, Anaptyxi SME, priced its triple-A-rated notes backed by corporate and SME loans and bonds at 45 basis points. The transaction was arranged by Citigroup Global Markets, Deutsche Bank and Eurobank EFG Telesis Finance Investment Firm.
Adriatico Finance SME Srl, the 162.95 million mixed commercial and residential MBS for Cassa di Risparmio della Provincia di Teramo, also closed last week. The pool consists of loans to 1,028 obligors with a weighted average current LTV of 60.88%, 27.9-month seasoning and the largest regional concentration in Central Italy (91.85%). The triple-A-rated 4.6-year Class A notes priced at 75 basis points, and the unrated Class B tranche came in at 500 basis points. The notes were retained by the originator.
"The market shows little sign of improvement," Societe Generale analysts said. "This will keep the pressure on banks to structure deals to be repo eligible backed by low-yielding assets or to come out publicly with more complex assets at high levels."
To be certain, it has been a pretty consistent story in terms of European primary issuance since the credit crunch erupted last year. The deals that have come to market have been retained for ECB repo collateral, but a rising concern over whether this phenomenon might put the market at risk continues to brew.
While the central banks' intervention has provided some much-needed stability by delivering a liquidity lifeline for the whole market and avoided the need for direct ECB funding, it has also created concern over opportunistic issuers creating a level of risk by packaging less appealing loans into their securitization transactions.
"The only concern we have is the opportunistic behavior of some originators, which have recently structured less conservative pools, and we believe that more transparency and eventual limitations are needed to avoid potential headline risk," UniCredit Markets and Investment Banking analysts said.
A better analysis of ECB eligibility requirements would allay certain concerns over headline risk created by some opportunistic issuers. At the moment, analysts said that the ECB offers insufficient information on which assets are effectively used as collateral for repo financing within its refinancing operation. The ECB discloses only periodic statistics on the amount of asset-backed securities that have been posted as collateral at a specific point in time.
The ECB stated that in September of last year, the total outstanding ABS used as collateral amounted to 215 billion, but with the hefty issuance program that many European banks have undertaken over the last nine months, that volume has reached at least 350 billion, according to UniCredit.
Analysts also disputed the fact that the ECB required that these ABS be rated triple-A. UniCredit said it had identified 11 notes with a rating below triple-A (nine double-A-rated notes and two single-A-rated notes). Analysts said they had also identified an eligible U.K. nonconforming security with an equivalent amount of 10.6 billion. "This is because it is not the rating that is relevant, but the seniority," they said.
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