Europe Is Rebuilding Its ABS Pipeline, But Who Is Buying?

Placed issuance of European asset-backed securities is expected to hit between €100-150 billion ($144-216 billion) this year, according to Rick Watson, managing director at the Association for Financial Markets in Europe.

  • 10 Jun 2011
Email a colleague
Request a PDF

Rick Watson

Placed issuance of European asset-backed securities is expected to hit between €100-150 billion ($144-216 billion) this year, according to Rick Watson, managing director at the Association for Financial Markets in Europe. While that is still a fraction of the €450 billion ($647 billion) at the market peak, the stronger pipeline is enough to shift much of the focus of this year’s Global ABS conference in Brussels to what part of investor base remains attracted to ABS.

Senior Reporter Hugh Leask recently sat down with Watson at AFME’s headquarters in London to discuss his expectations for the gathering. “We’ll be asking a lot of questions about who’s returned and who hasn’t, and why,” he told TS. “Investors are understandably taking their time to get back into the market.”

The following is an excerpt of the conversation.Listen to the entire podcast.


TS: As we head into Global ABS, how big a cloud is European sovereign debt?

RW: In London last June, the sovereign debt crisis had just begun to be a material issue for all of the markets. It caused much of the securitization markets to stop issuance activity in the late spring.

What we’re finding [now] is that even though securitization is affected just like all markets, with each subsequent news story it’s less and less of an issue than it used to be. The market is getting used to these types of events and it’s pricing in volatility well in advance, so it’s not as much of a shock.

TS: What are some of the other issues on the agenda at the conference?

RW: One of the key, major events is what’s happening with the investor base. Certainly some progress has been made in that area, but more needs to be done. We’ll be asking a lot of important questions about who’s returned and who hasn’t, and why.

Another important theme will be the number of different regulations, including things like “bail-in,” Basel III and the new resolution regimes. Another will be how new loan-level data requirements from both the European Central Bank and the Bank of England will impact the market when they come into effect.

TS: Last year the conference was held in London, this year it’s in Brussels. Is this move a reflection of the increasing importance of E.U. regulations on the ABS market in Europe?

RW: That’s certainly an important part of it. The regulatory and political environment will have a direct effect on our market for years to come in a variety of areas—not only with banks as issuers, but with insurers and pension funds as investors, banks as investors and the whole offering process. We thought it was easiest and most effective to go to Brussels to signal that very publicly.

This event has also always attracted a number of investors. There is a view that apart from London, where there is a lot of activity, Brussels is a convenient location for European investors to attend, not only from continental Europe, but also from London, and to some extent the U.S.

TS: What are your expectations for European securitization for the rest of this year? Have there been any surprises this year in terms of new asset classes or renewed investor appetite?

We’re not really looking too much for new asset classes per se. Many of the asset classes issued in 2010 and early 2011 were more of your vanilla-type of asset classes, but we do expect an improvement this year. Many of our members expect the volume of placed issuance to be somewhere between €100-150 billion ($144-216 billion).

As to what hasn’t happened, notably there have been no [post-crash] European collateralized loan obligations. We have not seen any issuance activity in Europe, although it has started in the U.S. again.

TS: Any big wins for AFME since last year’s gathering?

RW: Placed issuance has more than tripled since 2009. By our members’ estimates, there was about €90 billion ($129 billion) of placed issuance last year, both publicly and privately, and not used for central bank repo transactions. That’s still down from the €450 billion ($647 billion) in 2006 and 2007, before the crisis hit. But it’s a step in the right direction.

There is also a lot more data made available, particularly from the rating agencies. It’s helpful to investors, but also important to policymakers to identify what went right and what went wrong before the crisis. That’s been helpful in shaping the debate.

TS: What other major issues are you looking to address over the next few months?

RW: One of the biggest initiatives is a broader engagement with a variety of regulatory authorities, particularly the European Commission. There is a wide variety of different departments in the Commission that have an interest in this area. Certainly we have talked to a lot of different officials and they are interested in what some might call the “good part of securitization” coming back. The biggest challenge is how to specifically make that happen, while at the same time fulfilling the policymakers’ objectives of making sure there is proper and appropriate regulation that is constructive.

Another issue is what happens to insurance company investments. There is a major ongoing consultation on the E.C.’s Solvency II guidelines. As currently drafted, they would discourage investment in securitizations. We are establishing a good dialogue on this issue with the insurance authorities.

The other is the ongoing shadow banking consultation by the Financial Stability Board. They are looking for feedback to define what shadow banking is. Basel III and increases on capital requirements on banks [mean] the shadow banking sector is likely to grow not to shrink. We would like to engage actively with policymakers on that.

  • 10 Jun 2011

GlobalCapital European securitization league table

Rank Lead Manager/Arranger Total Volume $m No. of Deals Share % by Volume
1 Bank of America Merrill Lynch (BAML) 7,026 25 11.95
2 Citi 6,449 21 10.96
3 BNP Paribas 5,093 18 8.66
4 Barclays 4,040 11 6.87
5 Lloyds Bank 3,615 14 6.15

Bookrunners of Global Structured Finance

Rank Lead Manager Amount $m No of issues Share %
  • Last updated
  • Today
1 Citi 1,712.34 6 12.44%
2 SG Corporate & Investment Banking 1,292.64 1 9.39%
2 Rabobank 1,292.64 1 9.39%
4 Mizuho 1,215.54 3 8.83%
5 Wells Fargo Securities 1,012.71 4 7.36%