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Market sees ECB evolution as ‘endorsement’ of ABS revival

By Matthew Scully
11 Jun 2014

Bankers and investors think the European Central Bank is doling out a de facto endorsement for a securitization revival in Europe, even if that is exactly the belief that Yves Mersch set out to dispel on Wednesday.

The ECB is not setting out to promote any asset class, according to Mersch, who stressed to several hundred bank and investor executives gathered in Barcelona that the ECB’s chief priorities are price stability, financial stability and protection of the ECB’s balance sheet.

But Global ABS conference delegates disagreed, with one saying the ECB had come "full circle" in its treatment of securitization.

“The ECB is gentrifying a market that for a long time was demonised. That is very powerful,” said Ganesh Rajendra, head of credit and mortgage strategy at Royal Bank of Scotland.

“He’s talking about liquidity in the secondary market not least because of the ECB’s €300bn plus in assets pledged to it,” a head ABS trader told GlobalCapital. “It’s a 360 degree reversal. They’ve gone full circle now compared to their reaction post-crisis.”

Others, such a handful of investors, urged more caution. “What regulators should think about is how their preference or endorsement of certain assets over others may fuel the next bubble down the road. That’s just the way it always happens,” said a managing principal of an alternative asset fund who declined to be identified.

Traders reported that senior bonds in periphery notes, such as Italian RMBS, had priced in between half a basis point to one basis point by last Friday’s market close, one day after ECB president Mario Draghi laid out his vision for how securitization could play a role in the Eurozone’s recovery.

The central bank’s initiative may help steer securitization away from the negative stigma that stems back to the crisis, according to Alessandro Tappi, head of guarantees and securitization for the European Investment Fund.

“The question of whether they actually do any purchases or not is interesting, but it is the signalling that is important,” said another European banker speaking with GlobalCapital.

“Do they have to follow up? They will follow up if the price doesn’t stick. The ECB wants to create liquidity. Mersch used the words ‘very liquid’ to describe what he wants in an ABS secondary market. The aim is the most important thing,” the person said.

By Matthew Scully
11 Jun 2014