Market players at the Global ABS 2009 conference in London are calling for a holistic approach to healing the broken securitization market. Panelists speaking on an early morning panel about how to restore confidence in the market and how to rebuild the sector agreed that players from all sides of the industry would need to take responsibility for their roles in the financial crisis. While concerns over regulations, rating agencies and government aid, for example, were expressed, each panelist agreed that securitization is an important part of the financial system and necessary for the re-growth of the greater economy.
“There will always be a need for the dissemination of risk into the capital market for lenders,” said Ganesh Rajendra, head of structured products advisory for Henderson Global Investors. While the market will likely not see complex structures like collateralized debt obligation squareds again, there are still basic funding needs in the greater economy, like home and auto loans, that need to be fulfilled, said David Basra, head of securitized and real estate markets at Citigroup.
Panelists noted that over the past 22 months, blame for the financial crisis has been shifted from one group to another within the securitization realm. But Andrew Burgess, head of structured finance at Global International Bank, said that players, including investors, needed to accept their individual roles in the turmoil before a healing process could begin. “A lot of blame has gone to rating agencies and originators, but investors need to acknowledge that they invested in products which they never should have in the first place,” he said.
On the other hand, Burgess was adamant that upon the market’s return, structures would need to be driven more by investors, and less by originators, referring to the broken originate to distribute model and the current state of disenchanted investors. “We need to have faith in origination again. We need stability, visibility and clarity. We don’t need them to come to us telling us what we should buy, we need to tell them what we want to buy.”
Panelists were also keen to discuss state intervention of banks in Europe. All of the delegates praised the role that various governments across the jurisdiction played in stabilizing their respective banking systems through liquidity injections and even some nationalizations. Securitization collateral repurchase agreement schemes from central banks, in particular, were also praised, but the question of how to wean banks off of such programs could be the market’s next hurdle, they said. “Intervention from governments and near government agencies has been extremely effective. The panic surrounding the collapse of Lehman Brothers last year is almost unthinkable now,” said Basra. “But at what point do we say to issuers ‘you must go to the market’? You can’t restart a market without issuing, and the market is where capital is priced.”
Finally, all players agreed that the securitization sector would never return to they way it was before the crisis hit. The market would be smaller with more simpler structures, they said.