Consumer ABS issuance is becoming more of a credit product than a liquidity product, as consumer fundamentals weaken and issuers find less need to access securitization in an environment of substantial liquidity, according a Wells Fargo securitization report.
According to the report most of the increase in consumer debt outstanding has been on the back of student loans but sustained growth outside of student lending and auto finance has not yet emerged.
“In our opinion, the consumer ABS market is likely to grow slowly until consumers increase their ability and willingness to hold more debt,” said John McElravey, a senior analyst at Wells Fargo, in today’s report.
New issue volumes in consumer ABS this year have reached $74 billion. So far the pipeline has been largely dominated by auto paper. Wells Fargo said that year-to-date supply for the asset class stands at $33 billion or 45.2% of consumer ABS year-to-date issuance.
Credit card ABS are the second highest with $14 billion and student loan ABS followed with $11 billion.
At the current average of $14.5 billion per month, total issuance for full-year 2013would fall slightly behind Wells Fargo’s beginning of the year projections of $180 billion.
“It appears that the consumer ABS new issue market has plateaued,” said McElravey. “Twelve-month rolling consumer ABS issuance reached $175 billion in the past six months. It would likely take renewed momentum for ABS issuance to break out of this range because total volume for June/July 2012 was $37 billion.”
But McElravey said that it is unlikely that the pace of new supply will increase in the near term because along with the lack of growth in consumer spending, prime, benchmark auto issuance, which once accounted for the lion's share of consumer ABS issuance, has also stalled.
According to Wells Fargo, last year prime auto ABS issuance accounted for 26.4% of all consumer ABS but in 2013, the proportion has declined to 21.8%.
“Lenders in the prime segment of the market have become less reliant on securitization,” explained McElravey. “Indeed, there has been anecdotal evidence that some issuers expect to have a smaller presence in the market going forward.”
The others side of that equation is that subprime auto and auto lease ABS issuance has increased, as subprime lenders have tapped more into securitization and auto leasing has become more attractive.