Dan Stachel, a principal and head of fixed-income research at State Street Global Advisors, continued his crusade against some of the securitization market's inherent flaws by taking on participants including issuers, rating agencies and even fellow investors at the American Securitization Forum's debt conference last week in Scottsdale, Ariz. Stachel, who has become the most-outspoken critic of many of the established market practices, said the rating agencies cannot be objective because they are paid by issuers. He went on that issuers are stonewalling on disclosure standards recommended by the ASF's market standards & practices committee, of which he is the head. And, true to form, Stachel criticized the investor community for not demanding more from their sell-side counterparts--and even challenged fellow panelists at the conference.
"Isn't that like awarding rabbits for having more rabbits?" he asked of Eric Fellows, a v.p. at Charles Schwab Investment Management, after Fellows awarded issuers a B plus for their role in the securitization market. Stachel gave issuers a C.
Stachel said conflicts of interest prevent the rating agencies from being objective evaluators, also awarding them a C for their role. "There's an element of salesmanship that's more in keeping with someone who's making money off volumes," he said of the analysis by rating agencies. After the conference, Stachel told BW that he would be willing to pay a fee for independent credit ratings on structured finance deals, even if it meant as an investor that he would receive less income. He added independent research shops such as CreditSights are vital to the market and that there are few truly objective firms.
But, while not all investors are as vociferous as Stachel, those on the panel agreed that some changes should be made. Jeff Clapp, a portfolio manager at Barclays Global Investors, said the asset-backed market needs some kind of electronic platform, such as MarketAxess in the corporate world, to increase transparency. And, Josh Anderson, a v.p. at Pacific Investment Management Co., said the rating agencies need to be more consistent with their ratings and more conservative on their stress tests. The investors graded the various elements of the market as part of a "report card."
