For one thing, banks have been leaving the market. Since last year, three firms — Barclays, Credit Suisse and Nomura — no longer have dedicated secondary market teams in European ABS trading.
The first two firms are still big in the primary arranging business, but it’s an open question how long that can run without a secondary operation as well. Two of the board members for Afme’s Securitization division (which co-hosts the event) are seeking opportunities elsewhere.
At least certain firms are revamping their ABS offerings, and reconfirming their commitments to the market — BNP Paribas and HSBC announced large scale overhauls in the weeks immediately beforehand. BNP Paribas also hired a new head of trading, RBC’s Mehdi Kashani. HSBC has no new hiring plans (yet), but watch this space.
Part of the reason could be the increased role for balance sheet in the ABS secondary business, not in the boring business of holding bonds (which has become very expensive right across credit) but in offering financing to leverage up the buyside, usually through bespoke repo trades.
Regulators, one suspects, did not necessarily want increased capital requirements for banks to incentivise increased daily-margined leverage for the buyside, but at least it’s coming from supervised institutions. Firms taking the leverage, too, are unlikely to be systemic — if you’ve put money into a credit fund buying lower mezzanine CLOs, it’s likely to be a juicy diversification, not your whole life savings.
As with every other year since the crisis at Global ABS, there was also some glumness about the size, sobriety and lack of buyside representation at the event. Though the ECB is now buying (tiny amounts of) ABS, flow new issues still go to less than 50 investors, often less than 30.
The event also offered a case study in just how frustrating European policymaking can be. Years of uphill lobbying has got policymakers in the Basel Committee, the European Commission and Council to agree that “simple transparent and standardised” securitization could receive better regulatory treatment (unwinding part of the post-crisis knee-jerk hike in capital costs).
But now the European Parliament has got involved, and threatens to all but kill the market, on the issue of risk retention, a policy point which was debated to death in 2008-2010, and is now a widely accepted, standardised and functional part of the market.
This Parliament might just be suffering from its period of enforced idleness. The previous European Parliament, which stepped down in 2014, produced a greater volume of financial regulation than any other legislature in history. Quantity wasn’t necessarily a guarantee of quality, but it shuttled through blockbuster items like CRD IV, Banking Union, BRRD, MiFID II, Solvency II, AIFMD, as well as dozens of lower profile items — in round numbers, it re-regulated essentially the whole financial industry. The current Parliament, however, has essentially just reviewed a few of the above items and chin-stroked over the “Capital Markets Union” proposals.
Anyway, the MEP responsible for the market-killing proposals, Dr Paul Tang, showed up in Barcelona on Thursday, to address an echoey hall full of hungover securitization people. It was mostly a dialogue of the deaf though — Dr Tang said repeatedly that he wanted to “reverse the burden of proof” about whether securitization was dangerous, and that he (or the Parliament) “needed to look at” whether his proposals would be appropriate for all asset classes. Doubtless the industry will be happy to furnish him with evidence on either point.
In any case, it was a fine thing to get away from talk of Britain’s EU referendum. Conference organizers Afme made a point of banning panellists from discussing it, claiming legal reasons. If a lobbying organization can’t even lobby, one wonders how anyone’s supposed to make a decision, but perhaps they’re hoping to keep the door open to talking to a Boris Johnson government.
One way you could decide is to visit GlobalCapital’s EU referendum page, though it’s pretty clear what the markets think — they’re terrified. In corporates, that manifested itself in a rush to get deals done, while SSAs sit on the sidelines hoping to hit any windows of calmness that July will bring.
Or you could read our Old Money column, about another down-to-the-wire political decision which looked set to bring market disaster — but didn’t.
Either way, Thursday is the big night, with results likely settled by 5am Friday.
FX, rates and money market desks are likely to be strapping on their tin hats and preparing to pull all-nighters, expecting floods of volatility as the results come through. Credit traders, on other hand, are expecting a dead market, with investors sitting on their hands until some sort of direction emerges. Even a Remain vote is likely to cause political chaos. Either way, good luck!