Funding giant U.K. mortgages via the securitization market is likely a thing of the past because the market won't prove as profitable, said industry players speaking at a panel on covered bonds at the Information Management Network's and European Securitization Forum's Global ABS conference in Cannes this month.
"Most buyers of U.K. RMBS were arbitrage buyers like SIVs - they won't come back, so you have to ask who will be buying this product going forward, banks?" said Arjan Verbeek, head of covered bond structuring at BNP Paribas.
Verbeek added that while interest in RMBS wanes, the covered bond market is increasingly seeing a pickup in activity.
"People are coming to the market much more actively than the RMBS market," Verbeek said. "Deals are being printed, not at the same size or pricing that we've seen in the past, but it still works."
At the moment, most of the activity of the covered bond front has been led by the larger, higher-rated banks, although Verbeek was confident that it was just the start of activity that the sector is to see over the coming months. "If you want to take any exposure to a certain jurisdiction, covered bonds is the safest way to do it," he said.
However, one investor voiced his reservations over the credit soundness of covered bonds and argued that although covered bonds are sold as a separately rated product, they are still credit-linked to the issuer and, as a result, some structures have felt the backlash of downgrades during this credit crunch.
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