ABS 2009: Will the Market Adapt, Evolve And Survive?
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ABS 2009: Will the Market Adapt, Evolve And Survive?

Industry leaders “speaking out” this morning are expected to collectively examine the government’s $700 billion troubled asset relief program, or TARP, to try to determine how it will be implemented and what impact it might have in the asset-backed securities market.

— Hillary Jackson

Industry leaders “speaking out” this morning are expected to collectively examine the government’s $700 billion troubled asset relief program, or TARP, to try to determine how it will be implemented and what impact it might have in the asset-backed securities market, according to Claire Mezzanotte, a managing director at New York rating agency DBRS, Inc.

Mezzanotte, head of ABS and residential mortgage-backed securities, will moderate the session, which will feature panelists Tom Fell, senior vice president of treasury at Capital One; Andrew Peisch, managing director and head of ABS banking for the Americas at Deutsche Bank; Allan Berliant, portfolio manager at Grantham, Mayo, Van Otterloo & Co., LLC; Stuart Goldberg, managing director and senior portfolio manager at Marathon Asset Management LLC; and John Arnholz, a partner at McKee Nelson LLP.

Mezzanotte and the session panelists will discuss and debate the types of assets likely to be purchased under TARP, how the program will work, and what the short-, medium- and long-term impacts on the ABS market are likely to be. They will tie the coordinated effort by central bankers on interest rates and injecting money into their financial systems back to the ABS market and take a look at the macro-economic perspective with regard to the consumer. They will also debate how to get investors back into the ABS market, Mezzanotte says.

While it may still be too early to reach meaningful conclusions on many of these issues, the debate is likely to prove lively and interesting given the state of the market, Mezzanotte says.

The ABS market remains in a funk, turning in paltry numbers in the third quarter both in the United States and in most non-U.S. markets. Global issuance of ABS was nearly halved in the third quarter to $29.96 billion from $61.3 billion the previous quarter. In the United States, 24 deals worth $16.06 billion got done, compared with 66 deals worth $52.65 billion in the second quarter. Europe was one region that experienced a pickup in deals, with issuance nearly doubling in the third quarter. Seven deals valued at $6 billion were completed last quarter in Europe, up from four deals worth $1.06 billion in the prior quarter.

Meanwhile, annualized net losses on U.S. prime auto loan ABS reached a record high in August. Losses stood at 1.73%, just above the previous high set in early 2003. Auto ABS performance has been hit this year by the weak economy, which has seen rising unemployment, deteriorating consumer health and lower wholesale vehicle values, according to Fitch Ratings. The 2007 vintage is producing the highest losses since 2000, the rating agency says. The percentage of prime auto loans 60 days or more delinquent stayed at 0.71% in August, 20% more than levels in 2007. Annualized net losses rose 22% in August over July, which pushed losses 101% higher when compared to August 2007.

In the subprime auto sector, Fitch’s index of subprime auto loans that are 60 days or more delinquent was at 3.85% in August, 6% higher than in July. Annualized net losses were at 7.45% in August, 14% more than July’s figures and 31% higher on a year-over-year basis than the same month last year.

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