--Joy Wiltermuth
Securitization officials at Monday morning’s breakfast session of the ABS East conference in Miami, Fla., said they anticipate new issuance volume to roll along at a modest pace through year’s end, with stronger underwriting expected to win investor support.
Frank Byrne, global head of securitization at UBS, remarked that issuers, investors and the rating agencies have all reviewed their approach to the business since the downturn. “The market has gone through this and come out a lot smarter and more knowledgeable,” he said during the “Restoring Confidence and Rebuilding the Industry: The Role of Securitization” discussion. “[That means] good assets and structures are known and identified.”
Brian Lancaster, head of MBS, CMBS and ABS strategies at Royal Bank of Scotland, projected the U.S. market was on track to issue about $100 billion in consumer asset-backed securities by year-end. That figure across the asset-backed universe is now at $84.1 billion, according to JPMorgan data.
The paltry post-crisis supply has set the market up for an improving primary pipeline. “Way too much money is chasing the same slim primary paper,” remarked panelist Anatoly Burman, senior managing director at Aladdin Capital Management. “Issuance isn’t really that high and that will have continued pressure on the spreads.”
Investor demand has already driven spreads on select secondary paper to pre-crisis tights. Three-year prime auto paper, for example, is now trading at swaps plus 30 basis points, according to JPMorgan data. That’s a level not seen since July 2008.
Still, there’s not much happening in the residential mortgage-backed securities market. David Jacob, executive managing director at Standard & Poor’s, said the sector hadn’t seen new RMBS offerings due to heavy intervention by the government sponsored enterprises. “There isn’t really that much non-agency [mortgage] origination,” he remarked. “The GSEs are dominating the space.”
Lancaster and others agreed. “Residential is still at the starting gate. CMBS competes with the insurance companies [on loan origination], whereas RMBS competes with the government through Freddie Mac and Fannie Mae,” Lancaster said.
Christopher Flanagan, managing director at Bank of America Merrill Lynch, noted, [The Troubled Asset Relief Program] was the right policy to implement. “It prevented a financial Armageddon, but it opened up the political floodgates. In the past two years, that [translated] into bank bashing [and the notion of them] as the sole originators of the crisis.”