European securitization investors complain that they are being seen as childlike - they say it's not childish fear that's keeping them away, but rather not knowing what the final outcome will be once all the bad news is finally over.
The rules of the game are in transition, and buysiders prefer to wait until the new game is unveiled before making any new commitments.
The problem is that the rules of this game have been constantly changing. What is securitization if not an innovative and flexible type of funding?
Over the years, the product has expanded to accommodate all sorts of assets, and it is only wishful thinking that the securitization, for instance, of mortgage loans backed by LTVs exceeding 125% will survive in any economic cycle.
Overall, investors say that what they are after is more clarity as to the risks they are taking.
Even within CMBS, arguably one of the more transparent segments of the European securitization market, investors say that given the times, there is a greater need to disclose the nature of financing behind the deal. Specifically, they want to know where the equity is coming from.
Meanwhile, the banking industry says it's committed to doing better in divulging pertinent information.
While reevaluating the way it does business, the banking community has made a pledge to improve transparency. A lot of this motion stems from a desire to make things right before regulators step in and take complete control, an event that the industry agrees would be bad for everyone.
The European Securitization Forum (ESF), along with some of the major European securitization industry bodies (ASR, 2/18/08), recently put forth several proposals for European Union regulators.
Rick Watson, managing director and head of the ESF, said that one initiative the groups plan to undertake is a thorough look at what information the industry makes available to its investors and how it can be improved and expanded.
Having more information available will really make a difference only if it's kept up over the life of the deal. For transparency to work best, issuers need to be on the same page, disclosing the same information in the same way. Getting a boost of additional information won't work if that same level of disclosure isn't maintained over the life of the deal.
"We are trying as an industry to make sure that definitions are used consistently on a global level, which will lead to less confusion and more clarity on an investor level," the ESF said.
But change takes time. The ESF has no timeline for how long this part of its proposal will take to come into fruition. The groups are, after all, dissecting piece by piece the mechanics of the European securitization market.
In the meantime, investors are feeling left in the dark, and many just don't want to guess how this troubled market will evolve.
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