It's been seven months since the ECB launched its program for buying asset-backed securities so it seems fair to ask whether it has stimulated issuance.
Just barely, says rating agency DBRS in a report this week.
One big reason is that European Central Bank is only scratching the surface. DBRS estimates that it has bought 2%-7% of available issuance over the last seven months (see chart below).
The cumulative figure is 7.4 billion ($8.3 billion), or about 0.5% of the 1.44 trillion in total outstanding.
In contrast, the bank has been far more aggressive in snapping up covered bonds, buying a total 123.7 billion since that program's launch in October, or 10%-15% of the outstanding eligible volume.
That isn't to say the ECB isn’t aiding securitization in other ways, such as, for instance, through the yield-compressing effects of its massive quantitative easing program of buying 60 billion sovereign and corporate bonds a month.
“The real success of the ECB has been the drop in yields across the board, allowing banks and alternative finance companies to access the securitization market on attractive terms, particularly those in more stressed regions and non-traditional asset-classes," DBRS said.
Indeed the door has re-opened for certain kinds of securitizations from peripheral European countries since the crisis. Both Ireland’s Dilosk and Spain’s Union de Creditos Inmobiliarios recently came out with deals backed by mortgages and were reportedly pleased with the results.
Just as significant is the fact that the share of deals being sold to market investors is now exceeding the share held by banks as collateral for ECB funding. The dominance of the latter over the last few years has been a major symptom of the dysfunctional European securitization market.
While overall volumes are down 30% year-over-year through the end of May, the volume of “distributed” deals is 38% higher.
Nonetheless, overall volumes are down, about 30% year-over-year in 2015 so far to 66.6 billion from 96.3 billion. The figures were significantly higher even a few years ago, when the worst of the global financial crisis was over.
While conditions appear to be better than they have been for some time for tapping the securitization markets, other sources of funding have become more accessible as lending has eased for banks and their customers, as reported by the ECB's 1Q lending survey.
In terms of asset diversity, DBRS touted the revival of CMBS, non-conforming RMBS, and leveraged loan CLOs. Deals backed by loans to small-to-medium companies, on the other hand, have struggled to surface, facing competition from the cheap funding via the ECB’s Targeted Long-Term Repo Operation (TLTRO).
The main culprit for the lackluster securitization market in Europe remains regulations.
While European authorities have been paying lip service to easing how much investors need to hold against the securitizations the buy, the rules remain biased against securitization versus other forms of investment.